B&D remains debt-ridden

Donald Saltz

November 08, 1991|By Donald Saltz

Two and one-half years after the Black & Decker Corp. of Towson made a move to become the major maker of small household appliances by its purchase of the Connecticut-based Emhart Corp. for about $4 billion, after a prior purchase of the General Electric Co.'s household appliance line, B&D is still mired in debt. The company owes billions of dollars as it struggles to sell its products during a continuing recession.

Meanwhile, B&D's share price has done relatively well -- at about 16 it's only several points under its best price for the last two years. Earnings are barely covering the modest dividend, however, and analysts do not expect the stock to perform well for as far ahead as they can see.

The problem is the mountain of debt taken on in order to buy Emhart. Loans are being reduced -- so far by about $1 billion -- but the heavy load of debt likely will hang around for years. It's being paid off gradually, largely by the sale of B&D subsidiaries, ones it calls "non-strategic."

The huge debt, plus the recession, is the double-barreled problem that could sharply affect B&D's earnings for years. However, analysts think the firm will be able to meet its debt obligations as they come due, and slowly lower the total to a suitable level.

B&D's recession-affected profits for nine months this year are less than half of what they were in the same period last year -- down from about $44 million to $21 million -- with sales dipping from about $3.5 billion to $3.3 billion. The company has raised about $800 million for debt reduction by selling eight businesses that make products such as chemical adhesives and footwear materials. These are some of the non-strategic subsidiaries that are considered expendable.

"More divisions will be sold over a period of time," notes Michael Mead, an analyst for the brokerage firm Legg Mason. He says, too, that B&D does not face any especially large debt payments in the near future, thus allowing it time to raise money by selling more subsidiary companies. Mead praises B&D's operational results.

But neither Mead nor other analysts consider B&D shares a buy. "Neutral" is the word they use, which means that one who owns them should hold on, but there is no suggestion to buy or sell.

B&D's strengths are its well-known products lines and its name recognition. Company Vice President Barbara Lucas points out that the Black & Decker name is the seventh-best-known brand name in the country. In Europe, there is similar recognition for the Black & Decker name.

Black & Decker products are made in 60 plants around the world and they're sold in 100 countries. As it seeks to return to prosperity, B&D is relying on its quality image combined with funds realized through the sale of assets and an end to the recession.

McCORMICK ROLLS ON

The recession has not hurt operational results of McCormick & Co., which made two moves recently to reaffirm its long-term objectives. As sales and earnings continue to grow at healthy rates, the Hunt Valley-based company said it will buy back another million of its shares, a move that has the effect of increasing earnings per share. Additionally, the spices and flavorings firm is selling a chicken processing business that doesn't fit in with its overall objectives.

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