Ducommun Reports Operations Profit but Analysts Hold Their Cautious Stance

Ducommun Inc. last week reported a rare profit from operations, but analysts say it will take many more quarters of similarly positive results before they’ll be convinced that the electronics distributor has overcome its myriad problems.

And, they say, it could be a while before the Cypress-based company’s stock--recently starting to climb from its 52-week low--will take off like the shares of the other big high-tech wholesalers, such as Micro D Inc. of Santa Ana and Anthem Electronics. “It’s too soon to tell if they’ve turned the corner,” said Richard Rieger, a securities analyst with the New York investment firm of Ladenburg, Thalman & Co., which is one of the few securities firms to still follow the company’s shares.

Many investment firms stopped following Ducommun as its problems worsened during the past several years. And no major brokerage firm is currently recommending the purchase of the company’s shares.

But investors apparently liked what they saw in Ducommun’s latest earnings. In trading Friday on the American Stock Exchange, Ducommun shares closed at $15.50, up 50 cents for the day. For the week the shares gained $1.50. That gain followed a $1.125-a-share rise the prior week. During the past 52 weeks the issue has ranged in price from $12.25 to $21.

Rieger said in an interview last week that he considers Ducommun “too speculative.” He says there are “better alternatives” for investment within the electronics distribution industry.

“(Ducommun) is too highly leveraged, and there’s been a lot of turmoil at the top,” Rieger said, referring to the company’s sizable debt and the fact that it has had three presidents in the past two years. Ducommun has been hurt by a downturn in aerospace activity in the past several years, and sales in its distribution business did not materialize fast enough to handle the debt the company took on to finance the planned expansion.

Despite these obstacles, Ducommun Chairman Wallace Booth said he is “encouraged” by the recent financial results.

For the second quarter the company posted net income of $785,000, contrasted with net income of $103,00 in the same quarter last year. What was most encouraging was not the size of the increase, but the source and depth of the profit: All income in the period came directly from operations, rather than the sale of assets or tax benefits. And all of the company’s divisions were profitable.

In contrast, the company’s $6.4-million profit in the first quarter was due entirely to a $8.7-million extraordinary gain from the sale of two divisions. Without the special, one-time gain, Ducommun would have lost $2.4 million from operations during the quarter.

Booth said the Kierulff distribution division’s results are continuing to improve as sales increase and expenses are cut. He said profits from the aerospace group should pick up in mid-1988 as space shuttle contracts resume.

Still, Booth said, “as we look ahead in 1987, we are encouraged by recent developments, but we remain cautious.”