A Conglomerate That Wall Street Likes
By MICHAEL McFADDEN RESEARCH ASSOCIATES Margaret A. Elliott, Joshua Mendes, and Douglas Steinberg

(FORTUNE Magazine) – Conglomerates are out of fashion on Wall Street. Investors prefer companies that are spinning off subsidiaries, reducing debt, and buying back stock. By any of these measures, Willcox & Gibbs falls woefully short. So why does this 127-year-old sewing machine distributor turned miniconglomerate have a growing fan club on Wall Street? The answer involves some old-fashioned rising earnings forecasts -- and some newfangled ventures into automation technology. Willcox & Gibbs hasn't always enjoyed Wall Street's favor. The company borrowed heavily in the early 1970s to buy three apparel companies. The timing of those acquisitions couldn't have been worse: foreign imports and the 1974 recession cut the apparel industry to shreds and eventually sent Willcox into bankruptcy in 1976. New management brought the company out of Chapter 11 in 1978, but Willcox didn't turn a significant profit until 1983. In the past three years New York-based Willcox has made five more acquisitions to try to diversify away from its core business of distributing sewing machinery to the apparel industry. The company bought two electrical equipment distributors, two factory automation companies, and an elastic yarn manufacturer. Although Willcox's shopping spree cost only $29 million, it helped increase revenues 177% to $207.8 million in 1984; profits quadrupled to $9.4 million. Sewing machine distribution contributed just 22% of sales and 28% of profits in 1984. Though the acquisitions have increased long-term debt to 71% of Willcox's total capitalization, the stock has almost quintupled in price since 1982 and recently traded around $13. Analysts who follow the company say the stock still has lots more room to move. Willcox got back into the acquisition business by buying Regal Manufacturing Co., a producer of elastic yarn used in women's pantyhose. Next it picked up Consolidated Electric Supply, a Miami-based distributor of electrical components for the construction industry. It also acquired Inter-City Wholesale Electric, a small California electrical parts distributor. Robert Sullivan, a security analyst with PaineWebber, expects Regal to contribute 20% of Willcox's pretax earnings in 1985 and thinks earnings will grow 12% annually for the next several years. He has equally high hopes for Consolidated and Inter-City. ''The companies are well positioned in the two rapidly growing housing markets, California and Florida,'' says Sullivan. He expects electrical distribution to account for 61% of Willcox's sales and 54% of pretax earnings in 1985. He predicts that Consolidated and Inter-City earnings will grow 12% a year through 1990. Lately Willcox has been shopping for factory automation companies. It bought Eildon Electronics, a Scottish measuring equipment company, in June 1984, and acquired Leadtec Systems, a California software firm, last June. Willcox is using the acquisitions to develop a computer system that rapidly tracks worker productivity in apparel plants. Eventually the company hopes to sell the system to other industries, notably electronics. Analysts are cautiously optimistic about Willcox's factory automation venture. ''This is Willcox's wild card,'' says Sullivan. ''If factory automation proves successful, Willcox could be a very big stock.'' The main problem at the moment is debugging the software. Sullivan and Bernard Selz, who follows Willcox for the New York brokerage firm of Furman Selz Mager Dietz & Birney, expect earnings per share to increase a healthy 13% in 1985 to $1.40. Sullivan looks for a 21% increase in 1986 to $1.70, while Selz forecasts $1.60. Says Selz: ''If factory automation is a success, it could add as much as $1 to Willcox's earnings per share several years out.''

CHART: TEXT NOT AVAILABLE Up From Bankruptcy Willcox's stock has been rising since 1983, the year it began turning a signific nt profit.