Fool.com: Gillette Braces Investors for Harsh Q4 (Breakfast News) October 22, 1999

BREAKFAST WITH THE FOOL

Friday, October 22, 1999

"Creditors have better memories than debtors."
-- James Howell

Gillette Braces Investors for Harsh Q4

By Richard McCaffery (TMF Gibson)

Shareholders hoping that razor blade and Duracell battery company Gillette (G: NYSE) might pull out of its slump and report a brighter outlook for the rest of 1999 got a splash of cold water last night as the company warned investors to expect a tough fourth quarter.

Gillette expects Q4 sales to decrease around 5% and earnings to fall in the middle to high teens as the company reduces inventory to realign levels with weak international markets and leaner operating practices in the industry overall.

The move comes as Gillette continues to deal with unsteady international markets, weak sales in several major divisions, and a strong dollar that takes a bite out of worldwide sales. Investors, unfortunately, have grown used to bad news over the last few quarters. Gillette stock, which returned twice the performance of the S&P 500 over the last decade, has dropped 41% since April, largely as a result of disappointing sales and earnings.

For the third quarter, Gillette reported flat net income of $352 million and a 1% sales decline to $2.51 billion, in line with a preannouncement in September. Earnings per share jumped 7% to $0.32 per diluted share as a result of the company's stock repurchase program. Management announced a plan to expand its share repurchase program from 75 million to 100 million shares.

It's not all bad news. Blade and razor sales jumped 9% and profits soared 24% compared to last year, and Duracell battery sales grew 6% and profits 25%. However, Braun products, toiletries, stationery products, and Oral-B sales all fell. The company is considering options for its Braun and stationery products division, The Wall Street Journal reported.

A key issue for investors will be what the company does with these divisions. But on top of this, investors have to grapple with the company's debt, which was high to begin with and climbed in the previous quarter.

At the end of June, the Boston-based manufacturer had $3.1 billion in current liabilities and $3.3 billion in long-term debt, compared to just $63 million in cash. In addition, net interest expense -- the interest paid on its debts -- actually increased because the company borrowed money to fund its share repurchase program.

News to Go

Waste disposal company Waste Management (NYSE: WMI) said yesterday that preliminary results from an audit of the company's accounting statements will likely hit investors hard this quarter. The charge could be as much as $1 billion, The Wall Street Journal reported.

Biopharmaceutical manufacturing company Biogen (Nasdaq: BGEN) said it's stopping several clinical trials of its experimental drug Antova after some patients experienced adverse effects.

World-leading computer chip manufacturer Intel (Nasdaq: INTC) is getting ready to unveil its Pentium III and Pentium III Xeon processors on October 25. The chips are said to be faster than Advanced Micro Devices' (NYSE: AMD) Athlon chips.

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