Lead prices actually were the culprit. You see, Exide makes batteries. And one of the key components of batteries is lead. I was reminded of that today as I struggled to lift the dead battery out of my Honda
In its release, Exide grumbled over the fact that lead prices had risen 70% in a year. Ouch! To make matters worse, the company could only recover 34% of the cost increase through price hikes and cost-reduction efforts, according to my calculations. So with costs rising significantly faster than sales, the company's loss (excluding one-time items) was $0.91 a share, which is not a good sign for a company just rebounding from bankruptcy. Those kinds of losses have a way of putting significant strain on the liquidity covenants required. No wonder shareholders got all charged up and headed for the exits at more than 50 times the normal trading volume.
A branded commodity can be an excellent business. Think of a company like Kellogg's
But batteries? I don't know. Sears used to do fabulous marketing for its DieHard battery, making it the most recognizable brand available and allowing it to command higher prices. Unlike cereal, where you can taste the difference, you can't tell the difference between how your car starts using different batteries. Okay, maybe a little, depending upon where you live. But a battery is a battery is a battery as far as I'm concerned. And I'll pay the lowest price for the best value proposition.
So despite the drop in price, I'm not sure there is enough of a value proposition to excite even a turnaround guy like Philip Durell, advisor for the Inside Value newsletter. Slow growth and high-variable costs in a mature, commodity type business do not exactly charge up my desire to buy.
Fool contributor David Meier's Honda Odyssey starts now. And he timed the change so perfectly that he didn't even have to reset the car's clock. He does not own shares in any of the companies mentioned.