Daisytek Shares Fall After 2Q Warning

The Allen-based distributor expects to take a goodwill charge for the quarter related to its Tape Company unit and Argentina operations, according to the company. The company did not detail the amount of the charge. Analysts expected earnings of 20 cents per share, according to Thomson Financial/First Call.

Shares were trading at $10.25, down $2.25 per share, on Friday.

Daiystek expects revenue of about $450 million in the second quarter, a 61 percent increase over the year-ago quarter. However, the performance of the Tape Company and Argentina businesses, plus incremental costs related the company's U.S. office products rollout, will impact the results and the company will not meet analyst earnings estimates for the quarter.

"Although the Tape Company is still very profitable and we continue to implement new sales, marketing and cost-savings initiatives, industry unit price degradation is expected at a higher rate than any savings or gains we can hope to make," said Jim Powell, president and CEO of Daisytek, in a statement. "Results for the second quarter confirm that negative industry trends such as price degradation and volume declines continue to trouble this business."

Goodwill related to the Tape Company is about $24 million and originates from acquisitions by prior management of Steadi-Systems in fiscal year 1998 and VTP in fiscal year 1999, according to Daisytek.

"As our new warehouse network continues to expand, it is our plan to collapse some of the existing Tape Company distribution centers into our new regional network," Powell said in the statement. "We have already folded much of the Tape Company's back-office administrative functions into Daisytek. While the management team has done a great job of running the business as cost-effectively as possible and developing new initiatives to drive growth and profitability, the industry issues outweigh their current efforts."

In addition, a goodwill charge of about $2 million related to its October 2000 acquisition of Etertin y CIA in Argentina is the result of worsened economic conditions there, the company said.

"Argentina continues to experience significant economic and political turmoil. We remain committed to our presence in this important market, and we are optimistic that conditions in Argentina will improve. However, any recovery is likely to be longer-term than previously anticipated and our operations in Argentina are currently at a near standstill," Powell said in the statement.

Meanwhile, Daisytek's office products initiative is on schedule for a fourth-fiscal-quarter rollout in early 2003. A 900-page business products catalog of computer supplies and office products should be ready for distribution in January, Powell said.

Daisytek also expects to open regional distribution centers in Southern California and New York in January to complement its existing Memphis., Tenn., distribution hub.

Three other regional distribution centers are planned for next year, according to the company.

"Unfortunately, costs related to our U.S. expansion into office products, including the production of our new catalog; higher-than-expected costs in the buildout of our new warehouses; certain delays in converting from more expensive air delivery to lower-cost ground; and interest costs on investment in incremental inventory, have negatively impacted our second-quarter performance," Powell said in the statement.