Professor Mike Lord Comments on Primo Water Performance

Reposted from Winston-Salem Journal | by Richard Craver
Primo Water posts loss despite sales increase

A major sales boost for Primo Water Corp. still wasn’t enough to avoid a significant loss in the fourth quarter.

Primo, which issued its quarterly report Thursday, said it had a 61 percent increase in sales to a record $12.7 million. That reflects revenue it gained from its purchase of the Culligan Refill business, which it completed Nov. 10.

The company had an overall loss of $10.7 million and an earnings loss of 96 cents a share. It warned on March 9 that the earnings loss would range from 95 cents to $1, which included charges related to the purchase of Culligan Stores.

For the full year, sales were down 5 percent to $44.6 million. It had an overall loss of $22.7 million compared with $14.9 million a year ago.

Primo repeated its projections that first-quarter sales would increase by 80 percent to 85 percent, or in a range of $15.9 million to $16.3 million.

It expects to post an earnings loss between 7 cents to 11 cents a share, including charges, and finish the quarter with a range of 14,500 to 14,900 exchange and refill sites.

For the full year, it expects sales to range between $116 million and $123 million, including revenue from the Culligan Canada and Omnifrio deals it announced this month. It expects to add 5,700 to 6,700 retail sites during 2011.

It projects diluted earnings of between 6 cents and 15 cents a share for the full year, including charges, and 15 cents to 24 cents, excluding charges.

Michael Lord, an associate professor of strategy and entrepreneurship at Wake Forest University, said how well Primo integrates its recent acquisitions will be key to its short-term success.

“There is a solid base and some great potential, but these are competitive segments, and a lot of detail work yet to do to successfully complete and integrate the acquisitions,” Lord said.

An early test of Primo’s strategy will come in the first quarter, said Peter Tourtellot, managing director of Anderson Bauman Tourtellot Vos & Co., a turnaround-management company.

“It will be interesting to see how its first quarter stacks up to its forecast,” Tourtellot said. “It appears to have the leverage to attract new revenue and to expand with existing customers.

“I think their sales team(s), customer service, manufacturing and quality control will be tested in 2011. If they falter in any of those areas, it will have a negative impact on their revenue and earnings forecast for 2011.”