If you've ever noticed how gas prices seem to jump up by nickels and dimes when oil spikes, but come down penny by penny when oil drops, you know how industrial cleaning-product maker Zep (NYSE:ZEP) feels after reporting earnings last Friday.
At least according to Zep, company suppliers should be ashamed of themselves, for what they did last quarter was despicable. They enjoyed windfall raw-material cost savings from reduced crude oil prices, but when the time came for them to pass the savings along to Zep, did they?
No. Instead, they went about their own cost-cutting agendas, keeping prices stable, and making an already difficult situation for Zep even worse. At least, that was one of the setbacks outlined by management during Monday's first-quarter fiscal 2009 earnings conference call. For the Atlanta-based company -- think of Zep like Clorox (NYSE:CLX), without the brand-awareness -- this will be a tough year.
Sales were $129 million -- the lowest quarterly figure since the company was spun off from Acuity Brands (NYSE:AYI) back in 2007, and down 10% from the same period last year. Net losses totaled $1.5 million, or $0.07 per share.
Zep chief executive John Morgan still believes the business is recession-resistant, and at first glance, I would have thought so, too. It conducts large-scale operations through its industrial distribution business, but its products can also be found populating the shelves of commercial retailers like Home Depot (NYSE:HD). Apparently, sanitation isn't a top priority for businesses and consumers trying to cut costs any way they can.
Even worse, sellers have tossed Zep's stock into the mud, driving it down as much as 35% in the past week. However, even for any bargain-hunters who might think that Zep's long-term prospects are intact, I'd advise waiting before buying. Our current economic troubles -- and the particular challenges Zep is facing -- may not subside for a while.
Moreover, management expects to report little or no profit in the first half of 2009. Zep will likely be in good shape once the U.S. economy starts growing again -- maybe even sooner. For now, though, it could still have room to fall.
Further fully sanitized Foolishness:
