Financial Markets : Investors Rush to Unload Rykoff; Stock Slides 23% : Markets: Rykoff-Sexton’s stock plunged $5 a share after the company said earnings would be lower than expected for its third and fourth quarters.
Rykoff-Sexton Inc., the Los Angeles food services giant, was the Big Board’s leading loser Thursday, a day that saw the company’s stock drop 23% in value and lose $5 per share.
Rykoff is a company without a clue, analysts say. Consider: As recently as last September, the company predicted that earnings for the fiscal year ending April 28 would show strong improvement.
“But the stock’s getting killed today,” said L. Craig Carver, senior vice president for research at Dain Bosworth Inc. in Minneapolis. “They announced yesterday that their third quarter is going to be a disaster. This is really the third straight quarter in a row where they’ve greatly surprised the Street.”
A written statement released by company President Roger Coleman at the close of trading Wednesday sent investors scrambling to unload Rykoff stock Thursday. The result: Shares dropped to $16.875 from $21.875 by Thursday’s close on the New York Stock Exchange.
The Rykoff release said the company “anticipates earnings for the third fiscal quarter ended Jan. 27, 1990, will be below projections, primarily due to lower than anticipated sales increases, delays in the full implementation of cost-containment measures and certain non-recurring items.”
It went on to say that Coleman pegged earnings per share at approximately 5 cents for the third quarter, compared to 38 cents earned for the year-ago period. Coleman also said there would be troubles in the fourth quarter of fiscal 1990 and that it should take a full six months to turn the company around.
Victor Chavez, Rykoff’s vice president for accounting, acknowledged Thursday that the company has had a really rocky year, fraught with problems that management had not foreseen.
“In the second quarter, we found that our costs were not commensurate with our sales volume,” he said. “And, in this quarter, it’s been a combination of lack of sales gains as well as the cost reduction required not materializing as quickly as we had hoped for.”
Rykoff-Sexton distributes processed foods and related items to restaurants, cafeterias, schools and hotels.
Analyst Carver said he was positive on the stock through the first quarter. Then there were problems. He was positive through the second quarter. More problems. And now? “They burned me once, fine,” he said. “Twice is another story.”
To Carver, if a company has a problem containing costs, management should go in and correct it “in one fell swoop.” But the company contends that it will take six months to get costs contained.
“I said, ‘Why are you spreading it out?’ They said, ‘We’re a service-oriented industry. We don’t want the service to our customers to suffer.’ I said, ‘What about the suffering of your shareholders?’ They didn’t have an answer,” Carver recounted.
Mun Chan, food analyst for Gruntal & Co. in New York, said Thursday that most analysts had expected the company to report earnings per share of 40 to 45 cents for the third quarter, at least a modest increase from the 38 cents reported a year earlier.
“Coming out with 5 cents a share is, like, ridiculous,” Chan said. “My recommendation is that it’s a hold for long-term investors willing to take the loss and sit out for the next six to nine months.”
