Time for an "I hate Gillette" rant.
Here is the WSJ story on the latest developments at Gillette :
June 18, 1999
Gillette Shares Slide After It Warns
Of Dip in Annual, Quarterly Profits
By MARK MAREMONT
Staff Reporter of THE WALL STREET JOURNAL
Gillette Co. shares sank Friday after the company warned that second-quarter
per-share earnings would fall about 10% below Wall Street expectations and
indicated that profit for the full year also would fail to meet estimates because
of weak international sales.
Gillette shares fell $5.25, or 11%, to close at
$42.0625 on volume of more 30 million shares
traded Friday on the New York Stock Exchange.
Average daily trading volume is about 3.2 million.
The announcement, released after the close of trading Thursday, marks the
second straight quarter of disappointing financial performance from the
consumer-products company, which until last year had boasted eight years of
consistent double-digit earnings increases, excluding one-time items.
Gillette said second-quarter earnings would fall about 20% below last year's 33
cents per share, indicating it would likely be about 26 cents or 27 cents a
share. Analysts expected about 29 cents for the quarter, according to First
Call, an estimate that had been reduced following a prior Gillette warning of
weakness during the quarter.
The company said it expected a "low single-digit" increase in second-quarter
sales growth. A spokesman said sales were being depressed by sluggish
economies in Japan and Brazil, and a slower-than-expected recovery in Russia
and Eastern Europe, in part due to the Kosovo crisis. The spokesman said
depressed European currencies also would cause unfavorable comparisons.
Gillette also tempered expectations for its full-year profits. At its annual
meeting in April, the company had given an earnings target of $1.36 for all of
1999, which suggested second-half earnings would rise about 20%. More
recently analysts had been expecting earnings of $1.34, according to First Call.
But the Gillette spokesman said earnings in the third quarter were likely to
grow in the high single digits, while fourth-quarter income was expected to
expand in the "midteens."
In remarks prepared for analysts, Michael C. Hawley, who became chairman
and chief executive in April, said the company's "recovery isn't happening as
quickly as we had projected," but for the second half predicted sales
"approaching double-digit growth" and earnings growth returning to the
company's "more traditional levels," which a spokesman defined as between
15% to 20%.
On the positive front, Boston-based Gillette said it was continuing to gain
market share in several major businesses. The company said its U.S. blade
business holds a 72% market share, up three percentage points, while its
Duracell battery share in the U.S. had risen two percentage points on a
year-to-year basis, to 50%.
Gillette also said its board had authorized an expansion of a stock buyback
program that started in September 1997 to 75 million shares from 50 million.
The company said it anticipated the original 50 million share target would be
reached by the end of this year.
"These earnings disappointments are exasperating," said Constance M.
Maneaty, an analyst at Bear Stearns & Co. Despite Gillette's insistence that
second-half results would improve, she said the continued slow growth
indicates the company "is not out of the woods yet."
One piece of good news, Ms. Maneaty said, is that Gillette told analysts it
planned to address longstanding problems in managing its working capital. She
said the company is "the worst of any large-cap company" in managing both
inventories and receivables.
Copyright © 1999 Dow Jones & Company, Inc. All Rights Reserved.
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I looked into some numbers on Gillette.
I went to the Hoover's Online website :
hoovers.com
typed in "Gillette" for the "search by company name" thing.
Here are a few highlights :
1. Gillette's revenues were LOWER in 1998 than in 1997.
(And, we now know that trends for 1999 vs. 1998 are pretty miserable also).
2. The company's total stock market valuation (after) the big sell-off on the bad news is about $46.8 Billion. (this number can be easily obtained by clicking on the "NYSE : G (full quote)" thing).
$46.8 Billion is a price to sales ratio for the company of roughly 4.5.
The company has PE ratio of somewhere between 30 and 40 (depending on where the earnings "come in").
3. The company's annual revenues (after ALL THESE YEARS (more about that in a moment)) are only around $10 Billion (!)
(This a company that is so old, that it had some profound corporate developments during World War I (!). I read in a WSJ piece once that one of "King" Gillette's (the founder) brilliant marketing coups was to get the U.S. military to agree to supply soldiers fighting in World War I with Gillette razors and razor blades so that they would have the opportunity to be relatively "clean shaven" while under the constant threat of needing to put on a gas mask and hope it was air-tight against one's face). (Neat story, huh ?).
This was over 80 years ago. So, now they are up to only $10 Billion ???
4. Lastly, like so many other unbelievably over-priced (in my opinion) pieces of junk (but, it is okay (of course) because Warren Buffett says it is "great") ... Gillette is using "real money" to extinguish shares by means of a share buyback program. If fundamental concepts of arithmetic are still valid, this should weaken the company further.
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WHY DOES ANYONE WORRY ABOUT QUALCOMM BEING "EXPENSIVE" ?
Jon. |
