Plumped-Up Furniture?

Something odd is happening at Furniture Brands International (FBN ), the largest U.S. maker of such ware: It posted worse-than-expected first-quarter results, with sales falling 10.2% from a year ago and earnings per share tumbling 36%. Yet most analysts continue to rate the stock a buy--if not a strong buy. The stock has been a winner, running up from 15 a share in mid-November to 26 by February before settling back at 24.20 on May 2.

What's going on? "For starters, it's a Warren Buffett type of stock," says Bob Olstein of Olstein Financial Alert Fund. In fact, Buffett's Berkshire Hathaway took a 1.5% stake late last year. Evidently Buffett sees the same values we do in the company," says Olstein, who says the stock is worth 35. Trading at a depressed price-earnings ratio of 11, FBN is in a good business with strong cash flow, and is now poised for a turnaround, he says. Olstein's specialty is looking behind the numbers to spot value and avoid risks. His fund has racked up a 15.3% gain this year--as of May 2.

New management came in three years ago, and earnings stood flat while it tried to reposition the company for growth--which Olstein expects will pay off by next year. He sees earnings perking up, to $2.15 a share in 2002 and to $3 in 2003, vs. an estimated $1.80 in 2001. Olstein says FBN is generating cash flow of $70 million this year, which could hit $100 million by 2003.

Analyst Cody McGarraugh at investment firm Stifel Nicolaus says FBN's licensing pact with Home Depot will be a plus. Home Depot will pay royalty fees for the use of FBN's Thomasville brand. Its stores will be selling furniture that it will outsource with the Thomasville name. McGarraugh expects royalty payments of some $4 million in the first year of the pact.

By Gene G. Marcial

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