Revlon in Trouble Again

Revlon, the widely held cosmetics producer, announced disappointing earnings last week, and the high-yield issuer is expected to have further problems for the rest of the year.

So much so, in fact, that company management is in talks with potential acquirers for all or part of the company, which was reported as a distinct possibility as early as last fall (HYR 10/19/98).

Earnings fell 52% for the already-troubled issuer, to $5.6 million, or 11 cents per share, from $11.7 million, or 22 cents a share, for the year-ago period. Analysts' expectations had called for 31 cents a share, according to First Call Corp., a research firm that compiles analysts' projections.

The lower profits stemmed from extra expenditures that were incurred by Revlon to keep up with competitors' aggressive advertising budgets. That also will lead to the soft numbers for the rest of the year, as Revlon said it plans to continue stepping up marketing, and those costs will likely cause it to miss the current forecasts for the third and fourth quarters.

Revlon's $1.9 billion of outstanding high yield bonds, which include a zero coupon issue worth a maturity value of $770 million that comes due in 2001, have been on a rollercoaster ride for several months.

The lingering question in the market has been how controlling shareholder Ron Perelman will meet those debt payments. The zero-coupon bonds are the ones causing most of the the concern; late last year, they plummeted in the secondary market to the high 30s from about 77 in a matter of a few weeks. The company's other outstanding debt is in three issues with coupons of 8.125%, 9.5%, and 8.625%.

Some market observers view Perelman is a tough businessman, and one that will sell the company if necessary. Others, though, describe an owner that, in fact, has a weakness for this particular company and probably would find some other way to pay for those bonds.

The first hit, in October, also came on disappointing earnings; the company had been expected to have quarterly earnings of 70 cents a share at the time, and then came out with just seven cents a share.