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Tuesday, June 3, 1997
USA
Detergents HOW DID IT FIND TROUBLE? Investors in USA Detergents were wrung and hung out to dry earlier this year after a pair of horrendous quarters found the company rudderless and in a spin-dry cycle. As the stock tumbled from its mid-January high of $45 1/4, shareholders have grown cool to this once hot stock. In that time, the President of the company has walked away. PNC Bank, a creditor, has found the company in violation of its loan covenants and it too wants to walk away. It seems the only people sticking around are investors, hanging on the clothesline as their stock gets squeezed dry. BUSINESS DESCRIPTION USA Detergents makes value-brand laundry and household cleaning products. Through names like Xtra, Nice'N Fluffy, and Plumber's Aid, the New Jersey company sells its lower priced products through more than 30,000 retail outlets. FINANCIAL FACTS Income Statement 12-month sales: $200.4 million
12-month income: $2.7 million
12-month EPS: $0.19
Profit Margin: 1.3%
Market Cap: $177.2 million
Balance Sheet
Cash: $1.3 million
Current Assets: $64.8 million
Current Liabilities: $68.1 million
Long-term Debt: $1.4 million
Ratios
Price-to-earnings: 67.8
Price-to-sales: 1.1
HOW COULD YOU HAVE SEEN IT COMING? USA Detergents soiled the analysts' parade back in February when it reported just $0.06 a share in earnings for its fourth quarter. Wall Street had been looking for $0.25 a share. While the stock was bleached for a $13 7/8 drop to $20 3/8 that day, it bounced back to $27 5/8 a week later. The problems that had tainted the fourth quarter report, from operating inefficiencies at three new facilities to hefty expenses at the corporate level, were still there and eroding away at the gross margins. Analysts were again stymied when the company eventually reported a first quarter loss of $0.30 a share in May. Those with a sense of corporate history would also have been quick to recall how brand name behemoths do not drag their feet when the time comes to enter into price wars to wash out upstart value-brand competition. Fallen companies like Drypers, Checkers, and Cott are examples of casualties that resulted when the dominant players in their respective fields moved in. As USA Detergents' margins were, like its fabric softener, Nice'N Fluffy, it was only a matter of time before laundry giants like PROCTER & GAMBLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PG)") else Response.Write("(NYSE: PG)") end if %> decided to wage a pillow fight on the price front. They did, and USA Detergents has been deeply wounded from the battle. WHERE TO FROM HERE? The PNC Bank loan default has dirtied the balance sheet. The $30 million owed, formerly long-term debt, is now classified as a current liability. So, don't be fooled by the negligible long-term debt, worry that working capital is now a working deficit as Current Liabilities outweigh the Current Assets. So, while analysts look for the company to turn the corner and show a $0.97 a share profit next year after a loss this year, will the timer run out? The company should be able to survive the class action lawsuits filed last month, but will it find a new creditor? Its recently filed 10-Q noted that "In order to meet its anticipated commitments through the end of the current year, the Company must obtain additional sources of financing." Will they see it through to tomorrow's washload or, like that missing sock in the laundry, will USA Detergents disappear into the great unknown? -Rick Aristotle Munarriz ([email protected])
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