The financial dud of the current reporting season award is still there to be released and won, but yesterday two companies made an early bid for glory.
Boart Longyear (BLY) and Pacific Brands (PBG) were the contenders to emerge yesterday, but we have still to see the expected nasty loss from small women’s wear retailer Noni B (NBL) later in the week.
While Boart’s future remains clouded, Pac Brands, which has now started breaking itself up by selling a business to stave off the inevitable, produced another round of losses and write-downs which now total a massive $1.2 billion over the past six years.
Short of collapse, that’s one of the biggest destructions of shareholder value we have seen from an industrial stock.
In fact Pacific Brands could end up disappearing over the next year or so in a series of break up sales, thus removing one of the worst performing industrial stocks we have known for some time.
So could we see core brands such as Sheridan bed linen and Bonds products sold off in a general liquidation of PBG?
Pacific Brands, which is a clothing and footwear manufacturer, importer and wholesaler, yesterday told the market it would not pay a final dividend after more one-off losses and a fall in underlying profit.
As well it revealed it was selling its workwear business (King Gee, Yakka and Stubbies) to a division of Wesfarmers (WES) (itself an odd deal because of the purchaser) for $180 million.
Pacific Brands blamed rising costs and sluggish wholesale sales squeezed margins to the point where the company’s underlying profit fell 28% to just $53 million.
While group sales rose 3.8% to $1.322 billion in the year to June, earnings before interest tax and significant items fell 25.3% to $91.2 million, in line with Pacific Brands’ $90 million to $93 million profit guidance, which was trimmed more than $10 million in June.
Wesfarmers’ Industrial and Safety division is buying the workwear business which was put up for sale after a strategic review saw then CEO John Pollaers depart. His replacement was named yesterday as PBG’s chief financial officer David Bortolussi.
PBG 1Y – Pac Brands shrinking, shedding icons
After one-off costs of $312 million, Pac Brands reported a bottom line loss of $224.5 million, which about sums up the reality of the company’s operations.
Those $312 million of losses, or $277.5 million after tax, included non-cash goodwill impairment charges of $242.3 million, other asset write-downs of $16.2 million, and restructuring costs of $32.9 million.
These one-off costs took total impairment charges and restructuring costs over the last six years to more than $1.2 billion.
At that rate they are a permanent business cost and you can make a case for them being recurring, not one-off.
And while sales have improved in the first weeks of 2015, other metrics look bleak for the struggling company.
Pac Brands said sales had risen in the first eight weeks of 2015 and were expected to be higher over the year, underpinned by new retail and online stores.
The company’s gross profit margins are expected to come under more pressure in the current half year because of increased competition and foreign exchange movements, while costs of doing business were expected to rise.
"EBIT is expected to be down materially (but up on second half 2014 EBIT of $36 million)," the company forecast yesterday.
That mixed outlook can’t be why PBG shares rose 3c to 60c at one stage yesterday, before sense returned and the shares fell to 57.7c, up 1.2%.
But even that rise was too much given the repeated disappointments from PBG over the past few years.
