SunSource sells division will focus on industrial
By Industrial Distribution Staff -- Industrial Distribution, 8/1/1999
PHILADELPHIA--SunSource, which ranked 13th in this year's Top 100, announced on June 30 that a major restructuring campaign is still underway and that revenues and earnings will be hurt as a result. Stock in the thinly traded firm dropped nearly 15 percent to a 52-week low of $11 a share.SunSource's situation looks dire. The firm also announced that it was killing its dividend, and that sales in its industrial division were down more than 20 percent, mostly due to trouble integrating its sales staff. On the same day, SunSource said it was selling the OEM fastener business that was part of its SunSource Inventory Management Company, Inc., including its Hillman Industrial division, to Lawson Products, Inc. No sale price was given. The OEM fastener business represented $23 million in sales in 1998.
SunSource intends to record non-recurring charges of about $14.5 million in the second quarter of 1999, which is expected to generate a net loss in the quarter of over $9.5 million. Maurice P. Andrien, Jr., appointed SunSource president in April, said the firm will implement a restructuring plan to reposition its Industrial Services businesses, write off key machines at its Hillman division, and reduce corporate headquarters' expenses which will account for about $10 million of the total charge.
In addition, the Technology Services division expects to record non-recurring costs of about $4.5 million in the second quarter of 1999 related to the integration and consolidation of its five domestic Technology Services/Fluid Power divisions, which began in early 1997.
"Our industrial business is down more than 20 percent," said Andrien during a conference call with investors. "I don't think the market is down more than five or six percent. I don't think the [overall] market is off anywhere as much as we are. We shot ourselves in the foot -- plain and simple."
The company also indicated that because it is highly leveraged, it will explore selling one or more of its four divisions. However, it was unclear if the Hillman/fastener divestiture will be the company's only move. Despite its problems, SunSource most likely will not divest its Technology Services division, which includes most of its industrial business.
"Let me talk about technical services, which is our most difficult situation right now," said Andrien. "Of all of our businesses, it's the one we would be least likely to consider doing anything with because it is inherently a good business. It has large potential to grow, it's a fragmented industry and has good ability to grow [through consolidation], and it has international opportunities which we haven't explored."
Andrien, who joined the firm just last April, said he didn't realize the extent of the company's problems until recently. "We may not have all the resources to support all of our businesses today," he said. "I didn't expect to find what I found here, and I'm at least as surprised as you folks are. Nevertheless, I remain very excited about the long-term potential of SunSource."
Those words didn't calm investors on Wall Street.
"It's interesting that this integration can take two-and-a-half years and counting," said Patrick Parr, an industry analyst who follows distribution stocks for Furman Selz LLC. Parr lowered his rating on SunSource from "buy" to "hold" following the firm's announcement. "We've given them plenty of time to execute it, but at this point, the fact that they are still taking charges and referring to how much additional work needs to be done is surprising.
"It's clear that 1999 will be much more down than any of us could have imagined, and that growth won't return until at least mid-2000, and that 2000 will be flat with 1998 at best."
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