Armor All Polishes Image With New Auto Product Line

Waxing the car may well become the new national pastime, while trips to ballgames and beaches could become passe.

“People who never before waxed cars will begin doing so,” predicts Gibbs Moody, an analyst at the San Francisco brokerage firm of Hambrecht & Quist.

If Moody’s vision of the future proves accurate, Irvine-based Armor All Products Corp. appears poised to become a major beneficiary.

Moody and other analysts say Armor All has the potential to emerge as one of the nation’s leading producers of auto wax and wash products. After conquering the car market, they say, a line of home cleaning products is a logical next step.

“They own the garage, then they’ll go into the home. There’s no disputing the power of their name and marketing and what they’re capable of,” Moody says.

Armor All, which has been making an auto vinyl and upholstery protectant for 17 years, began an ambitious product expansion effort last week by announcing a new line of car waxes and wash products. It plans to promote the products with a $5 million TV ad campaign in the next year.

Within two years, Armor All says it is confident it can capture up to 20% of the wax and wash product market, which it expects to expand significantly from its current annual retail sales level of $250 million.

Analysts say distributors and retailers are rushing to stock Armor All’s new products, which will begin appearing on store shelves this fall.

The prospective value of Armor All’s expansion plans apparently are already reflected in the price of its stock, which closed Friday at $22.50 per share on the over-the-counter market, down $2.00 for the week. A little more than two weeks ago, Armor All had reached an all-time high of $27.25 per share.

Frequent price fluctuations aren’t uncommon for the stock, which has been a high-flyer since Armor All was partially spun off from McKesson Corp. last October. McKesson sold 16.7% of Armor All’s stock to the public at $12.50 per share, while keeping the remaining 83.3% for itself.

Ever since the spinoff, the price has bounced each quarter with earnings news.

“People haven’t known how to trade it,” says Jack Sullivan, an analyst at Van Kasper & Co., a San Francisco brokerage firm. Indeed, there are few publicly traded auto product companies, so tracking seasonal sales fluctuations has been confounding.

Armor All has been particularly difficult to value because it came from nowhere. “It was buried here,” acknowledges Marvin Krasnansky, a vice president at San Francisco-based McKesson, which reported revenues of $6.7 billion in fiscal 1987.

Buried, maybe, but not unbeloved. Armor All’s 1987 earnings of $17 million accounted for 19% of McKesson’s profits of $89.7 million. Armor All, which employs only about 50 workers, generated $107 million in annual sales.

Analysts say investors have bid the stock up in recent weeks in anticipation of big plans from the company. Now, with the good news out, they’ll wait to see how well Armor All’s new products sell.

“It got a little pricey there at $27, but it’s getting to be a good stock in the low $20s,” says Henry Jicha Jr., an analyst at the New York investment firm of Wood Gundy Corp.

Mark Matheson, an analyst at the brokerage firm Raymond, James & Associates in Salt Lake City, says results for fiscal 1988 should give an early indication of Armor All’s ability to penetrate a fragmented market dominated only by Turtle Wax, which has captured about 35% of auto wax and wash product sales.

Although it may be an elusive subject for analysts, Armor All’s studies say its brand name is as familiar as Kleenex and Coca-Cola.

Moody, for one, believes that Armor All will succeed in capturing the wax and wash market by first “educating” consumers that they need to take better care of their cars and then telling them how to do it.

He notes that the company’s $5 million ad campaign for the new products is greater than the estimated $3.5 million spent by all other car wax companies combined on advertising last year. “When the consumer is blitzed with pictures of cars being rotted by rain, snow and salt water, and he learns he can extend the life of his car, he’s going to do something,” Moody says.

If Armor All can capture a significant share of the car-cleaning market, its logical next move will the introduction of home-cleaning products, analysts say.

The company hasn’t said whether it plans to expand beyond the auto market, but McKesson’s Krasnansky says he receives letters every week from people finding non-traditional uses for Armor All products.

“It’s a possibility,” he says.

That possibility of Armor All should be sufficient to keep long-term speculators interested.