PSS World Medical Inc., the Jacksonville-based medical supply company that grew from scratch 17 years ago into a billion dollar-plus sales organization, could be up for sale after another disappointing earnings report sent its stock price to a five-year low.
PSS on Monday night announced that it engaged investment banking firm Donaldson, Lufkin & Jenrette to advise its board of directors on 'strategic alternatives to maximize shareholder value which may involve the entire company or its separate operating divisions.'
Company officials said yesterday they could not comment further on what those alternatives might be. But when companies make an announcement like that, the alternatives 'typically include selling the company,' said Bernard Lirola, an analyst at Needham & Co. in New York.
'The business is going to continue operating going forward. We just want to unlock the value for our shareholders,' said Chairman and Chief Executive Officer Patrick C. Kelly.
That value has been dropping because of disappointing earnings over the last three years. PSS also reported that earnings for the third quarter ended Dec. 31 were lower due to a shortfall of shipments from several of its equipment suppliers.
Sales in the quarter rose 16 percent to $462.1 million, but because of additional expenses, net income excluding special items fell 19 percent to $12.9 million, or 18 cents per diluted share. That was 5 cents a share lower than the consensus forecast of 10 analysts polled by First Call Corp.
PSS's stock fell as low as 5 13/16 yesterday, its lowest level since January 1995, and closed at 6 5/16, down 2 3/4 on the day. The stock traded as high as 33 3/4 in 1996 before a series of quarterly earnings reports that missed analysts' forecasts sent the stock down.
Much of the earnings disappointments have resulted from PSS's acquisition two years ago of Gulf South Medical Supply, which distributes supplies to the nursing home industry.
PSS has had a difficult time restructuring Gulf South's operations to make it more profitable. Gulf South had an operating profit margin of about 2 percent in the third quarter and Kelly said the company's goal is to increase the margin to 5 percent. He said yesterday it is taking longer to reach that goal than company officials thought.
Kelly said the company's other two divisions, which distribute medical supplies to office-based physicians and to imaging businesses, are doing well. The Physician Sales & Service division, the company's original business that Kelly started in 1983, had a profit margin of about 7 percent in the third quarter.
Overall, PSS reported net income excluding special items of $41.4 million, or 58 cents per diluted share, for the nine months ended Dec. 31, about even with the $41.9 million, or 58 cents, earned last year. Net income including special items was $39 million, up from $36 million.
Net sales for the nine-month period were $1.351 billion, up from $1.155 billion a year ago.
Company officials said they aren't likely to make any decisions on strategic alternatives anytime soon.
'We think its probably months and not weeks,' said Chief Financial Officer David A. Smith. |
