Fedders, Movie Gallery hurt by earnings; Dana moves up; MagnaChip firms

By Stephanie N. Rotondo

Portland, Ore., May 11 - Poor quarterly numbers hurt both Fedders Corp. and Movie Gallery Inc. on Friday, with Fedders bearing the brunt.

Traders were calling Fedders' bonds down 8 to 10 points on the day, after almost doubling its quarterly loss from 2006.

Still, the wider loss was not a big surprise to most market participants, but, as one trader pointed out, management gave very little insight into the company's outlook.

Movie Gallery's debt fell of about 2 points during high-volume trading, and some do not see good things in the movie rental chain's future.

"We're not fans of the situation long term," one trader said.

Meanwhile, traders are seeing Dana Corp.'s notes continue to get better as the company attempts to drive ahead in its bankruptcy proceedings. Financials were also released from the Toledo, Ohio-based company Friday, which showed a doubled loss in operations costs.

MagnaChip Semiconductor LLC is attempting to prove it is a survivor, and one trader is seeing it working. The chip maker's bonds have continued to improve over recent weeks, and Friday was no exception, gaining about half a point on the day.

Elsewhere, a European court ruling gave Merisant Co. a sweet taste of victory. The maker of Equal-brand sweetener won its case in a French court against McNeil Nutritionals, the makers of Splenda. The news saw the company's debt rise about a point on the day, 5 points over the week.

Fedders bonds dive

Fedders' bonds "got clocked" on its quarterly numbers, a trader said, placing the 9 7/8% notes due 2014 down 10 points to 40 bid, 42 offered.

"It looks like such a small company now," he added, noting that the air quality solutions manufacturer no longer stocks its products in some big name retail stores like Home Depot and Wal-Mart.

Another trader quoted the bonds at 42.5 bid, 43.5 offered, also down on the numbers, but with light volume. The trader also said that the notes hit as low as 40.5.

At another desk, a trader called the bonds 8 points down, but off the lows at 42 bid, 43 offered.

"The numbers were just awful," he said. "Off the charts awful."

Fedders posted a net loss of $18.9 million for the first quarter of 2007, compared with a net loss of $9.9 million the previous year. The loss was based on net sales of $30.1 million, a 69.8% decline from the previous year's net sales of $99.7 million.

Still, the company pointed to two key factors that contributed to the "awful" numbers.

First, the Liberty Corner, N.J.-based company said in its 10-Q filed with the Securities and Exchange Commission late Thursday that the $90 million financing deal obtained in late March was too late to impact its first-quarter results, leaving the company with insufficient liquidity for that time period.

Going into the second quarter, the company said it has enough cash resources as well as expected future earnings and short-term borrowing capacity.

Second, the company cited an industry-wide decline, stating that the entire sector had seen its sales slip by 32%.

"There weren't any surprises," a trader said. "There was nothing unexpected."

There were, however, things that could have scared investors off.

"To put your Q out there on Thursday, then schedule your conference call for next week, you have no chance to explain yourself," he said. Without any type of explanation from management, "people got scared and decided to trade a few bonds."

Despite the current lack of information regarding the company's plight, the trader looked to the call to shed some light on the subject.

"Hopefully, the call will give us some insight with how things are proceeding," he said.

Movie Gallery hurt by numbers

The "big mover of the day" was deemed to be Movie Gallery's bonds, according to one distressed trader, who saw "a lot of volume" in the notes.

The trader said he saw the 11% notes due 2012 last trade at 82.625. Another trader said the bonds were "off" at 82.5 bid, 83.5 offered. Yet another trader said the notes opened down 2 points at 83, and then closed down 2.5 points at 82 bid, 83 offered.

Meanwhile, Movie Gallery's term loan B headed lower after the company announced not-to-positive first-quarter results, according to a trader.

The term loan B ended the day at 99¼ bid, 99¾ offered, down about three eighths of a point from previous levels, the trader said.

For the first quarter, total revenues were $647.7 million, a decrease of 6.7% from $694.4 million in the first quarter of 2006.

Operating income in the quarter was $33.6 million, compared with $67.5 million for the same period last year.

The Dothan, Ala., video rental company reported a net loss of $14.9 million, or $0.47 per share, compared with net income of $40.3 million, or $1.27 per share, in the first quarter of 2006.

And, adjusted EBITDA totaled $63.5 million, compared to $116.8 million in the first quarter of 2006.

"The numbers weren't as good as everybody hoped," a bond trader said.

"They bought themselves a lot of time with this bank loan," he continued. "So they'll limp along. Long term, though, it's not a good thing for them."

"We're not fans of the situation long term," another trader said. "It's such a momentum name."

In fact, it is a name that had in recent months been used in context with Fedders. Many traders were saying that Movie Gallery had turned its business around, especially once it had refinanced some of its debt. Those same traders were hoping that Fedders would follow in the movie rental chain's footsteps.

Now, however, traders are changing their tune.

"Lots of things get chased up because no one has any other ideas," a trader said, explaining the Movie Gallery/Fedders debacle. "Then reality hits."

Dana moves up

In the automotive sector, Dana's bonds are continuing to move up, as one trader remarked that the Toledo, Ohio-based company is "forging their way through bankruptcy."

Another trader said Dana's 7% notes due 2028 climbed 2 points to 87.5 bid, 88.5 offered. He said the company's equity was also better, closing up 43 cents, or 37.39%, to $1.58.

The automotive parts supplier posted a $56 million loss from continuing operations for March on $786 million in net sales, according to its monthly operating report filed Friday with the Securities and Exchange Commission. That compared to a $25 million loss on $690 million in net sales the previous month.

MagnaChip edges up slightly

Chip maker MagnaChip has been making the rounds to high-yield conferences, pitching its story of survival. It is the positive public relations that have been helping the Seoul, Korea-based company's bonds get better and better - at least according to one trader.

The trader said he saw the semiconductor manufacturer's floating-rate notes up about half a point at 93 bid, 94 offered.

"As they make their pitch why they are a survivor, the bonds move up," he said.

Merisant better

A favorable court ruling boosted Merisant's bonds by about a point on the day, a trader said, adding the notes were up 5 points over the week.

The trader pegged the zero-coupon/12¼% discount notes at 63.5.

A European court ruled that the maker of Splenda, McNeil Nutritionals, misled consumers in its marketing campaign, ordering the advertising to cease.

Merisant, the manufacturer of Equal brand sweetener, brought the case against McNeil almost three years ago, alleging that the company is misleading consumers over whether Splenda is natural.

A similar case in the United States goes to jury during the May 14 week.

Still, the European victory was a positive, as the maker of Splenda now has 30 days to change its packaging and advertising, "which is always good for Equal," the trader said.

Sara Rosenberg contributed to this article.

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