Wickes ‘Optimistic’ Over Carpet Liability : Securities Analysts Are Told That a Hard Estimate Is Still Weeks Away

Wickes Cos., saying it is still unable to quantify the costs of resolving a carpet problem at its Collins & Aikman unit, told New York securities analysts Wednesday that “we are guardedly optimistic that the exposure to Wickes is less than originally feared.”

However, the Santa Monica-based conglomerate has never offered even a ballpark estimate of the costs of replacing Collins & Aikman-made carpet or otherwise dealing with potential liability that may result from the disclosure that some carpet customers were given phony flammability test results.

Wall Street estimates of Wickes’ cost still range from lows of about $30 million to as high as $300 million. In the past couple of weeks, as Wickes has attempted to play down the severity of the problem, many analysts have reduced their estimates.

And about 100 analysts and portfolio managers who jammed a luncheon meeting room at the New York Society of Securities Analysts offices in downtown Manhattan seemed disappointed by Wickes’ indications that an estimate is still weeks away.

Wickes Chairman Sanford C. Sigoloff defended Collins & Aikman--purchased by Wickes in January--as a company that “was and still is outstanding.” He described the carpet problem as “a glitch that happens in American business” and highlighted the way Wickes dealt with the problem. The issue is one of “corporate morality” he said, adding: “We’ve invested a tremendous amount in being a good corporate citizen.”

Many analysts remain guarded in their opinion of how severely Wickes might be hurt by the carpet problem, which was disclosed April 15, about three months after Wickes completed its $1.16-billion purchase of the New York-based company.

Since then, information about the problem, which originated out of Collins & Aikman’s floor coverings division in Dalton, Ga., has come out piecemeal. It is known that the unit submitted phony test results to customers, then shipped an undetermined amount of product that failed to meet certain local fire and smoke standards.

The product at issue is an estimated 30 million square yards of rolled carpet or carpet tile with polyvinyl chloride backing, worth about $360 million, that has been shipped to commercial customers, including the federal government, schools and hospitals.

Edmund M. Kaufman, an outside Wickes director who is heading up a task force looking into the carpet problem, said the investigation requires an enormous amount of time because of a “complex morass” of issues--including vast variations in local regulations and difficulty in tracking down customers.

Kaufman drew some laughter with a timely comparison about the scope of the trouble. “Don’t compare it to what Citicorp announced in the last day or two,” he said, referring to the huge bank company’s plan to add $3 billion to its loan-loss reserves and take a $2.5-billion loss for the second quarter.

Range of Estimates

Among the industry analysts, Anthony Pearce-Batten, with the Legg Mason Wood Walker investment firm in Baltimore, has put his “informed guess” at Wickes’ exposure at $225 million, based on an assumption that half of the carpeting shipped is still in use and that Wickes will account for it over three years. Oliver S. Corlett, with Drexel Burnham Lambert, offers a “middle-ground estimate” of $125 million.

At the meeting, Wickes also announced preliminary figures for the first quarter ended May 2 showing increases in operating and net income that result primarily from a one-time gain on the sale of Wickes PLC, the company’s European building materials operation.

For the quarter, Wickes expects to report net income of $120 million on revenue of $1.54 billion, up from $20.6 million on sales of $995.1 million in the same period last year.

The improved figure included tax credits of $38 million and a $72-million after-tax gain from the sale of the European operation, according to Wayne M. Simon, an analyst with the Value Line investment service. Without those, Wickes would show net income of $10 million, a decline of about 30% from the comparable figure last year.

However, Simon also noted that, despite the decline, the company’s common shareholders actually will fare better than in last year’s quarter. That is because the company has in the past year converted most preferred shares to common, reducing its preferred-dividend burden.

Balance Sheet Stronger

“A lot of it is financial manipulation,” Simon said, but by reducing the preferred obligation the company “has strengthened its balance sheet” as far as common shareholders are concerned.

Wickes will report operating income of $91.9 million for the first quarter, compared to $52.6 million for the same period last year. Sigoloff attributed the increase primarily to strength in the company’s building materials and home improvement segment and to the purchase of Collins & Aikman. However, gains there were offset by declines in apparel and hosiery.