Wednesday, February 3, 2010

What customer would you LEAST like to lose? (XIDE, WMT)

Yep, Walmart.

Stored-energy producer (fancy way to say batteries!) Exide Technologies (XIDE) shares are off 28% today, despite beating earnings estimates. The bad news was
this little tidbit in the release:

"The Company recently received notice from Walmart that it has decided to utilize a single-source other than the Company as its supplier of automotive batteries for its U.S. retail operations. Walmart purchases currently represent a significant portion of the Company's Transportation Americas sales. The Company believes that the order phase outs will continue into the third quarter of fiscal 2011. The Company is actively pursuing other sales opportunities in an effort to minimize the impact of this decision on future revenues.
Ulsh said, "While we hope that we'll have an opportunity to regain some or all of this business in the future, we are optimistic that we can take steps to minimize the long-term impact associated with this transition. The transportation battery segment remains highly competitive, and we will continue our efforts to offer the best products and distribution network to current and future customers."
They say that Walmart represented a "significant portion" of Transportation Americas segment revenue - the key is whether "significant" means 20%, or 80%.

My first inclination is that the shares are overreacting to this news. They're off 28%, despite the (hopefully true) 10k disclosure that no customer represents more than 10% of sales.

I'm wondering if the huge hit to shares reflects new concerns about their ability to service their interest payments - right now they cover quarterly interest payments by 4-5times, so I could see that slipping substantially in coming quarters. There is a lot going on here, I will update when the company returns my call.
Copyright 2010 AlphaNinja

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