It's been another rough week for Exide Technologies
According to the conference call, one convenant required Exide to generate $130 million of adjusted EBITDA -- earnings before interest, taxes, depreciation, and amortization. (While EBITDA makes plenty of adjustments to net income, adjusted EBITDA throws in a few more for good measure, including restructuring costs and a bunch of other non-cash expenses.) For the most recent quarter, Exide estimated it would earn only $100-$107 million in adjusted EBITDA. Fool me once, shame on Exide; fool me twice, shame on the creditors.
Costs are the core of Exide's problems. Rising lead costs now exceed one-third of the cost of goods sold. The company has increased prices to recover some of those lead expenses. But the commodity costs that make up the other two-thirds of the cost of goods sold, such as plastic resins for battery packaging, have been rising as well, the company said. Unfortunately, customers seem to have little sympathy for Exide's cost problems. Lead may make Exide's batteries a better value, but plastic packages do not.
In a previous take on Exide, I discussed how a branded commodity can be a great business model. Motley Fool Inside Value pick Coca-Cola
Since Exide emerged from bankruptcy, its shares have fallen just over 81%. Given its dramatic price drop and the brand-name recognition gained through its NASCAR partnership, one would think Exide is an excellent value opportunity -- famed investor George Soros thought so. I'm not saying I'm smarter than Soros, but this branded semi-commodity is not like the others I mentioned. In my opinion, Fools would be wise to resist the temptation to buy.