Fisher & Paykel Appliances delivered a double-whammy of downgrades yesterday, prompting an angry sell-down of its stock by disappointed investors.
Its shares opened at 63c, but after delivering an $84.2 million loss for the half year to September, the stock was trading 9% down at 59c during the day.
The downgrades came in the form of lowering the range of expected profit for the full-year 2009 result, from earlier guidance of $20 million to $23 million, to between $16 million to $23 million.
However, guidance given of a full-year 2010 loss of between $55 million to $65 million was most disappointing for investors.
Its potential as a takeover target, most likely by 20% cornerstone shareholder and giant Chinese manufacturer Haier, appears increasingly possible given that Fisher & Paykel's market capitalisation has fallen more than 40% - from $752 million in November 2008 to $434 million yesterday.
Fisher & Paykel's reported loss of $82.4 million included $81.6 million of abnormal items, with $56 million attributed to impairment charges taken in the United States investments.
Excluding the one-off items, the company posted a normalised loss of $847,000 below the expectations of an after tax profit of $1.8 million, Craigs Investment Partners broker Peter McIntyre said.
"They continue to disappoint the market. Investors are asking if they are going to come back in another three months and say things have worsened," Mr McIntyre said.
No dividend was declared, compared with 5c last year.
Management said the high-end of the US market fell off by up to 50%, including a 90% decline in one key customer, however, $501 million of debt in May had been reduced to $214 million.
There was expected to be increased seasonal refrigeration sales in the months ahead, plus stock coming out of the new Thailand plant and cost savings coming in from the Mexican plant, to assist the full-year result.
However, while Australia is expected to trade better and there are 994 new US stores soon to stock appliances, the US "could have another downturn" and was not expected to recover until late-2011, management said.
Mr McIntyre said the losses and remaining company debt could prompt Haier to make a cash injection, and increase its stake in Fisher & Paykel.
"I would not be surprised if Haier stumped up more cash and increased its stake to 50% or more, some time during the next two years," he said.
Forsyth Barr broker Tony Conroy said Fisher & Paykel could possibly become a takeover target, but was discounting it at present.
"Haier is the obvious name, but I don't view it as likely at this stage," he said.
Mr Conroy and Mr McIntyre both had a `buy' recommendation on the stock, the former positive on the US launch into 944 Sears' stores and Haier targeting 30% high-end market share in China; the latter on Haier making a takeover play and likelihood of increasing sales with a global recovery from recession.
Mr Conroy said the existing strategic partnership meant Haier already got most of the synergy benefits associated with a takeover, but without actually owning 100% of Fisher & Paykel, which reduces the likelihood of a takeover.
Company chairman Ralph Waters said market conditions in the US during the period were especially difficult due to higher levels of competition "and the company's significant exposure to the severely depressed high end of the appliances market".
Because of the underperformance in North America, a one-off charge of $55.5 million after tax was made for asset impairments and fair value write-downs, while other one-off costs of $25.9 million after tax were incurred.
Mr McIntyre said Fisher & Paykel's revenues were down in all markets, the US being hardest hit, down 30% on the previous year, followed by Australia and New Zealand.
Net operating cash flow, not including the finance division, of $17.9 million fell short of guidance of $27 million, given before a September downgrade.
Mr Waters said while first-half trading was below expectations, "it is encouraging that the projected earnings for the second half indicate a recovery in Appliances' performance".
These would come from the benefits of the global manufacturing strategy, cost-down initiatives and increased distribution opportunities being realised, Mr Waters said.
However, due to impairments and fair valuation write-downs associated with North America, the full-year 2010 after-tax result and abnormals was now forecast "at a loss of approximately $58 million to $65 million," Mr Waters said.
Both brokers financial disclosure documents are available on request.
