|
|
|
|
|
|
Wednesday, June 18, 1997
Boyds Wheels,
Inc. HOW DID IT FIND TROUBLE? Boyd Coddington is a great American success story. A former machinist at Disneyland, Coddington decided some years ago to indulge his passion for custom hot rods by designing them on a full-time basis. In the last fifteen years, his sexy cars, which sell for up to $400,000, have won him six coveted industry awards. One of his cars was featured in the music video for ZZ Top's "Legs." Boyds Wheels now owns Coddington's hot rod business, but the company actually began as a side business that filled orders for the custom wheels that appeared on his cars. While American cheese may not appeal to the connoisseurs of the world, Boyds has become a hot brand in hot wheels. Even Mattel has licensed Coddington's designs for its toy cars. The company is also working to take advantage of Boyd's name recognition among car enthusiasts by broadening its product line to include car care products. This success story, though, hit a speed bump in February when the company announced a fourth quarter loss despite a 37% sales increase. While the firm had expanded manufacturing capacity by 50% during the quarter, sales actually came in below expectations, trailing the 53% growth rate seen for the year overall. Net income was also affected by a one-time interest charge related to a capital lease buy-out. The surprise loss cut the stock price in half. And the bad news has kept rolling in. The firm came out with even more disappointing first quarter results in early May, as sales dropped to $3.6 million from $5.5 million in the year-ago period. Increased overhead due to the recent expansion also weighed on net income, leading to a loss of $0.37 a share, wiping out trailing earnings. The only good news was that orders increased 30% during the quarter versus 1996. BUSINESS DESCRIPTION Based in Stanton, California, Boyds Wheels designs and manufactures high-quality aluminum wheels for the specialty auto aftermarket. Its billet wheels, cut from solid pieces of aluminum, sell for $1,000 to $7,000 while its cast aluminum wheels go for $700 to $1,000. The company also makes motorcycle wheels, steering wheels, and aluminum accessories, and has picked up a following among Harley-Davidson enthusiasts. Its new Boyds Ultra Violet car care products are now being sold at national distributor AutoZone's 1,500 stores. FINANCIAL FACTS Income Statement 12-month sales: $26.2 million
12-month income: ($0.5 million)
12-month EPS: ($0.12)
Profit Margin: N/A
Market Cap: $15.7 million
Balance Sheet
Cash: $2.7 million
Current Assets: $16.8 million
Current Liabilities: $5.6 million
Long-term Debt: $6.7 million
Ratios
Price-to-earnings: N/A
Price-to-sales: 0.60
HOW COULD YOU HAVE SEEN IT COMING? Based on estimated FY97 earnings of $1.10 per share and an industry growth rate of 12%, Boyds looked fairly priced during the January period. Indeed, the company might have appeared undervalued given its strong performance in the previous few quarters. News of the fourth quarter loss, though, changed the equation overnight. While the initial carnage was unexpected prior to the earnings news, the ensuing drift to the $5 area might have been predicted. Unexpected losses can destroy investor confidence and lead to a series of aftershocks from investors facing margin calls. WHERE TO FROM HERE? The only analyst still actively following the company has been slashing earnings projections over the past weeks. The estimate for FY97 has dropped to $0.15 per share, with the FY98 number now at $0.50. That puts the stock at 33 times forward estimates or about 10 times earnings seven quarters out. Balancing the value of the Boyds name against the poor recent results, these shares appear to be about fairly priced. On the other hand, the company is greasing its wheels to get operations running smoothly again. It has temporarily reduced its workforce. The firm also just brought in a new chief operating officer with two decades of experience in the recreational auto parts business. Plus, the increased manufacturing capacity was designed to allow Boyds to enter new regions in time for the peak summer selling season, and the March boom in orders suggests that the added capacity just might come in handy. The company has also reported strong initial sales from its new line of car care products, which should benefit from additional distribution agreements. Boyds Wheels may have landed investors in a ditch, and it's hard to see when these wheels will shine again, but the company isn't just spinning in place. -Louis Corrigan ([email protected])
|
|||||
|
|||||||