Toaster ruckus shouldn't burn bottom line Black & Decker analysts not bothered by quarrel over recall

Kitchen appliances

November 01, 1997|By Sean Somerville | Sean Somerville,SUN STAFF Bloomberg News contributed to this article.

Analysts said yesterday that Black & Decker Corp.'s quarrel with the federal government over a toaster recall won't affect the Towson-based company's finances.

The U.S. Consumer Product Safety Commission filed a complaint against the company Thursday, calling a Black & Decker recall of 224,000 Spacemaker Optima Hortizontal Toasters inadequate.

After falling Monday, Black & Decker's shares rose $3.50 Tuesday, only to fall $1.50 Wednesday and more than $2 to $37.25 Thursday before steadying yesterday to close the week at $38.0625, about $2 below the previous Friday.

"What the company has said publicly is that this [recall] is about a $1 million hit to earnings," a tiny part of the company's annual net income of roughly $230 million, said Stephen J. Dobi, a Goldman Sachs analyst, adding that it won't influence his analysis of Black & Decker.

Company officials, who issued the recall Monday, said the focus of the dispute is a video filmed by the commission that shows a toaster catching fire and causing a kitchen fire.

"It was a rigged demonstration," said Barbara Lucas, Black & Decker's executive vice president for public affairs. The video "showed a cause and effect relationship that was predetermined."

The CPSC filed the complaint Wednesday before an administrative law judge in Bethesda, alleging that the design of the toaster raises a substantial risk of kitchen fires. When a toast cycle is completed, the commission said, a front glass door automatically opens and the food rack juts out; so, even if the food items are on fire, the toaster door will open, and the flames can spread into the kitchen.

The government's primary reason for filing the complaint was "lack of public notice," said commission spokesman Ken Giles.

The video, filmed by the CPSC, shows that with "burning food in the toaster, the toaster door opened, the burning food came out, and within moments it had ignited the cabinets" set up for the video, Giles said. "We encouraged the company to show that, to show the level of risk."

But Lucas said the video "doesn't approximate real life." Black & Decker would release a video of the toaster that showed it in a possible situation, she said, but not one which is "rigged to cause this type of conflagration."

In a news release announcing the recall, Black & Decker said it was aware of 242 reports of fires and two minor injuries involving the toasters, but that the fires had only caused minor kitchen cabinet damage.

Black & Decker stopped manufacturing that model, the T1000, in February 1995, and notified the commission of that in March 1995, Lucas said.

The company also instructed T1000 owners to cut the plug off and send it to the company for a $40 coupon good toward the purchase of a new household appliance.

Jim Lucas, a NatWest Securities analyst who follows Black & Decker, said the $40 coupons, if they were used by all 220,000 owners of the T1000 toaster, would cost between $8 million and $9 million.

He said that's a small amount for a company with operating income of about $500 million a year, noting that the toaster was a relatively small seller.

Ultimately, he said, the recall could cost Black & Decker about a half-penny of its projected earnings per share of $2.30.

Pub Date: 11/01/97

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