Royal Group Technologies Ltd. may consider selling its U.S. window-coverings business if the sector does not become profitable in fiscal 2003.
Publicly held Royal, based in Woodbridge, Ontario, is attempting to recover from a stinging net loss of C$22 million (US$14 million) in that business during its fiscal 2002, which ended Sept. 30.
``We have a solid plan to turn around the division,'' said Mark Badger, vice president of corporate communications. ``We're firmly focused on operating the division and realizing its potential.''
Still, officials told analysts during a Nov. 19 conference call that selling will be a ``top option'' if results do not improve.
The Houston-based unit has seen its vice presidents of finance and fabricator sales replaced within the past month, and last week the chief operating officer left the company. To date Royal has laid off more than 200 workers, officials said during the call, stating that ``an extraordinary situation calls for extraordinary measures.''
As part of its turnaround plan, Senior Vice President Gwain Cornish has assumed interim responsibility for the division, Badger said.
Also, Royal will shift production of ``price-sensitive,'' ready-made blinds to Mexico and will consolidate warehousing and production plants. Royal produces window coverings at two plants in Houston and Florida.
``We're looking at some opportunities in terms of reshuffling our production of window coverings,'' Badger said of the shift to Mexico. ``We have not set a plan in motion at this time.''
Officials blame several factors for the poor performance. Its ready-made sector has faced stiff competition from China, causing margins to erode. Additionally, the business has witnessed significant up-front expenses for new, ``tailored'' coverings programs - coverings that are cut to fit in the store while the customer waits, or custom products that consumers order to fit their windows.
Royal also suffered from a temporary shift in product mix during the fourth quarter, which officials attributed to the launch of ready-made retail programs simultaneously with the tailored programs.
Royal is rolling out a series of tailored programs in Lowe's Home Improvement Warehouse and Home Depot stores nationwide.
The firm is well into that program, officials said. They expect to know very early on whether they will be successful, and officials expressed satisfaction with the unit's progress in October and November.
Jay McKinnell, an industrial products analyst with Raymond James Ltd. of Toronto, said the window coverings business is more of a distraction and a nuisance compared with other parts of Royal that are performing reasonably well. McKinnell said he assumes officials will fix it, but more slowly than expected.
``It's not completely noncore, but the big question is whether they can stop the losses and turn it around - and on the timeframe that they've predicted,'' McKinnell said in a Nov. 21 telephone interview.
``They're predicting that they will be able to stop the losses [by the end of March] and then turn a profit in the following six months, so that by the end of September, they can break even. It will be very interesting next quarter to find out how much they've been able to reduce those losses.''
Asked if he thought the time frames are too aggressive, Badger said: ``We're in motion with the plan. We seem to have a good team right now working toward execution of the plan. Everyone is very much committed to executing our plans within timeframes that we've established.''
Industry sources say the business of blinds can be daunting itself, dependent on fickle consumers and fashion trends. Royal introduced a ``cut-down'' machine last year for cutting blinds to size in the store. Royal produces that machinery itself.
But the firm also was in line with fashion trends, sources said. Vertical blinds have faded in popularity, replaced by horizontal blinds, shutters and blinds that look like wood. In 2001 Royal responded by introducing products made of extruded foam with the appearance of wood.
Royal, traded on the Toronto and New York stock exchanges, reported sales of C$547 million (US$347 million) for its fourth quarter, with profit of C$38 million (US$24 million). Its sales increased 15 percent from the same period a year ago, when Royal reported profit of C$50 million (US$32 million) on sales of C$474 million (US$300 million).