thanks for the post, david. as you're probably well aware, more than a gloveful on this board got the latex probe and i'm sure they too appreciate your 'lessons learned.'
the following's an excerpt from the san diego UT. morash is beginning to remind me of one of those orangutans in the planet of the apes: see no evil, hear no evil, speak no evil.
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DON BAUDER
16-Mar-1999 Tuesday
San Diego Union-Tribune
Stock of badly-burned-and-battered medical glove maker Safeskin rose 7.67 percent to $9.66 yesterday, and although that's down very sharply from the all-time high of $45.83 on July 17 of last year, it's also less than half the $20.69 of March 5. After it had been more than cut in half, many analysts thought it could never get halved again.
They were wrong. And the heroine is Melissa Wilmoth of Salomon Smith Barney. Back in late October, she downgraded the stock, noting that sales grew 5 percent in the third quarter, but receivables soared by 61 percent.
The trends could be "a harbinger to trouble down the road," she said then.
Most analysts ignored her fears; the stock -- which had already been
knocked down into the $20s -- recovered a bit.
On Feb. 10, the company reported record sales and earnings for its fiscal year ended Dec. 31, 1998. Fourth-quarter sales had been up 27 percent. (The company took an expected one-time charge for plant relocation.)
Then a month later, on Thursday of last week, Safeskin stunned Wall Street by stating that its first-quarter earnings will be well below analyst
expectations because of lower sales. Earnings per share for the quarter ending March 31 will be only 1 to 2 cents, said Safeskin. Wall Street had expected 27 cents.
Safeskin also said sales will be disappointing for the full year. The stock was sold off once again, as analysts downgraded recommendations.
Russell Mosteller Jr. of Merrill Lynch lowered his intermediate term
opinion from accumulate to neutral: "Investors will require evidence that operations can return to a growth mode after the current inventory bulge is worked through," he said.
Said Mosteller, "Although company receivables and inventory levels are not the current problem, management acknowledges that they misread distributor and customer inventories of gloves during the third and fourth quarter."
Laurie Goldstein of Gruntal & Co. complained that she had spoken with Safeskin management on Monday, March 8. "At that time, no indications were given that any issues regarding the quarter/year existed," she said. She raised her rating to a strong buy.
"Management misspoke," she said as she lowered the rating to a hold just three days later.
Said David Morash, Safeskin's chief financial officer, "There was nothing to be able to legally tell her" on March 8.
"I am suspicious any time I see a company saying one month that everything is fine, then the next month saying there is weakness," said Timothy Vick, editor of Hammond, Indiana-based Today's Value Investor. "The company may have stuffed distribution channels in the third and fourth quarter to pad earnings and now that is coming back to haunt them." He has dropped the stock to a hold.
There was no such stuffing, said Morash.
Evans K. Kissi of Joseph Stevens & Co. also downgraded the stock to a hold, stating, "unless management develops a timely and effective system for evaluating inventory levels at various distributors and the prevailing market demand for products, the shortcomings just announced could become a chronic event."
Law firms jumped in. San Diego's Finkelstein & Krinsk, in filing a suit,
charged that Safeskin made false statements about product demand that helped cause an overstatement of fourth-quarter 1998 financial results.
The law firm also charged that some Wall Streeters appeared to get inside information and dumped shares just prior to a trading halt last week. "We have not been served with the suits," said Morash. "We will vigorously defend ourselves."
It looks like Wilmoth of Salomon Smith Barney "was right after all," said Bud Leedom of San Diego Stock Report. That receivables bulge may have been meaningful: "It may take awhile for this issue to resolve itself," and while Safeskin might enjoy some upmoves, "it will probably be a muted recovery," he added.
Don Bauder's e-mail address is don.bauder@uniontrib.com |
