October 2004  Email this  Print this
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STOCKS
CoolBrands Melts Down
by Ilana Polyak Ice cream and diets go together like swimmers and sharks -- unless the ice cream is the low-cal variety. So in a world gone diet-crazy, it made perfect sense for a small Canadian company called CoolBrands International to capitalize on consumers' health concerns. CoolBrands, best known for Eskimo Pies, started making low- and no-fat ice cream for Weight Watchers four years ago and low-carb frozen treats for Atkins followers nine months ago. CoolBrands now controls a third of the "not as bad for you" ice-cream market, making it the largest player. As the obsession over weight loss kicked into high gear, investors took notice. CoolBrands' stock rocketed from $5 (all amounts quoted here are in Canadian dollars) in March 2003 to $27 a year later. Today, however, the stock (symbol COBa.TO, Toronto Stock Exchange) fetches a mere $10.
What caused the crash? In late July, Weight Watchers pulled its licensing deal, which accounted for about 20% of CoolBrands' 2003 revenues of $357 million. The loss of the contract, which expires in September 2005, is expected to whack earnings by 10% in the fiscal year that ends in August 2006, says David Stein, CoolBrands' co-CEO.
The defection of a major customer obviously has a chilling effect on any company's prospects, but a 63% drop in stock price because of a potential 10% earnings cut smacks of overkill. CoolBrands has a year to replace the lost sales. CoolBrands' Yoplait breakfast bars and Skinny Cow low-fat frozen desserts are new, promising products that could take up the Weight Watchers slack. CoolBrands is also becoming a player in ice-cream distribution.
The stock sells at just nine times estimated earnings of $1.17 a share for the year that ended August 31. Projected earnings for the next fiscal year are $1.10 a share. The ultimate topping for investors would be a takeover. Unilever, the British-Dutch parent of Ben & Jerry's, doesn't have a U.S. distribution system and is a possible bidder.
--Research: Jessica Anderson | 
MAGAZINE
