Stumble Took the Shine Off Armor All’s Stock

The stock market’s reaction to Armor All Products Corp.’s stumbling fiscal 1990 performance provides a clear look at what can happen when a successful company disappoints for the first time, especially when it is not widely followed by analysts.

Outside of a few small local brokerages, there are just four investment analysts who pay close attention to Armor All. And in such a small universe, even one negative voice can have a huge impact.

In Armor All’s case, however, at least two of the analysts recently issued sell recommendations because of the company’s yearlong earnings decline.

Things heated up when the company announced March 12 that President Jeffrey M. Sherman had resigned and repudiated his earlier prediction--issued Jan. 24--of only a “modest” decline in earnings for the year.

Armor All “created a crisis of confidence” with the flip-flop on 1990 earnings, said Mark Matheson, an analyst with the regional brokerage of Cruttenden & Co. in Newport Beach.

“In the market, it doesn’t matter what reality is, what matters is the perception,” Matheson said.

He said Armor All put him in an awkward position because he revised an earlier projection of a major earnings slump--the earliest warning issued about the firm’s problems--after Sherman’s upbeat statement.

After dropping his earnings projection for Armor All to $1.10 a share--or $23 million, down from $27.1 million in fiscal 1989--Matheson said he issued a new report “adding five cents a share to my earnings projection. Then they came out with their March 12 announcement!”

Jeanine C. Heller, auto products analyst with the Stifel Nicholas brokerage in St. Louis, said she issued a sell recommendation in late February, based on her belief that Armor All would have a dismal year because of the costs of competing with a well-financed new challenger in the line of protective substances, First Brands Corp.’s Son of a Gun!

With no one out there countering Heller and Matheson--both of whom say they think that the company is sound and will recover--a gentle decline in stock prices turned into a wide selloff that has driven the price of Armor All common stock to a near-record low since mid-March.