Neutrogena, the maker of premium-priced soap, skin-care, and hair-care products, may be going through a major facelift after 18 months of slumping sales and earnings. Strong second- and third-quarter results that seem to validate forecasts of a turnaround have driven up Neutrogena's stock 50%, to 22 1/2 a share in just two months. But the earnings upturn may not be the only reason behind the stock's perky performance.
Several smart-money players who bought shares in recent weeks believe there's a more important factor: snowballing speculation that Neutrogena Chairman Lloyd Cotsen, whose family controls some 44% of the stock, may be preparing to cut a deal to sell a big stake to a group associated with a large European conglomerate.
WELCOME RETURN. For some time now, rumors have swirled about Cotsen's supposedly secret desire to sell the company. And the recent marked improvement in sales and profit margins, along with the appointment in July of an old Neutrogena pro, Allan Kurtzman, as president and chief operating officer, may encourage a deal.
"Neutrogena is a recommended turnaround/takeover story," says Andrew Shore, an analyst at Prudential Securities, who turned bullish on Neutrogena in June, when the stock was trading at 14. He sensed then that an earnings turnaround was in the making. On Aug. 23, Shore upgraded his 1992 earnings estimate to 95~ a share from 90~, vs. an estimated 80~ for 1991. Neutrogena earned 71~ in 1990 and $1 in 1989.
Shore is convinced that Cotsen, who turns 64 in 1993, will have sold the company or at least his controlling stake by that year, if not sooner. He thinks that one of Cotsen's interim options may be to do a joint venture with a large global company in order to broaden Neutrogena's international exposure. Shore doesn't think that such a joint venture will hamper the sale of the company. Neutrogena, whose foreign revenues account for 15% of total sales, has subsidiaries in Britain, France, Japan, and Germany.
Kurtzman's return to Neutrogena is a welcome move, says analyst Diana Temple of Salomon Brothers, because he was president of Neutrogena's consumer division during Neutrogena's glory years from 1981 to 1987. She thinks Kurtzman, 64, will definitely help Neutrogena relive its past. When Kurtzman left Neutrogena in 1987, he rejoined Revlon Group as president of its then recently acquired Max Factor, whose products became a hit in Europe and Japan. Max Factor's success attracted Procter & Gamble, which eventually acquired the company in April. Will Kurtzman do the same for Neutrogena? Prudential's Shore and some big investors think so.