After holding on the The Female Health Company (FHCO) for quite a while I’ve decided to sell my position in this company.
Things started to turn bad for FHCO after the company reported first quarter results. Revenue slumped by 30% and EPS dropped from $.09 to $.05 year over year.
O.B. Parrish, Chairman of The Female Health Company said…
“We believe the decrease in unit sales was due to public sector purchasing patterns and does not reflect any weakening in underlying demand for the product. The Company is involved in discussions for potential significant orders.”
I wrote off the bad quarter to a temporarily slump in orders. The Chairman’s comments gave me some confidence that the stock was still a long term hold.
Then the second quarter results were announced and they were much worse. The stock took a little tumble and the future is now looking pretty bleak. EPS dropped to just $.01 in this quarter which now puts the dividend in jeopardy.
Adding insult to injury the statements from the Karin King in the press release for Q2 looked like a copy paste from Parrish in Q1. With a lack of new information I felt that they were showing little hope for improvement throughout this year.
If the earning slump continues they could drop into a net loss and be forced to cut their dividend. Of course, orders could pick up and EPS could shoot back up to cover the current quarterly dividend of $.07.
I don’t believe that the business in doomed or flawed and I know there is a chance that new orders could come in for Q3 and drive EPS up to $.15 or higher. Unfortunately for me the risk of a dividend cut and future risk of inconsistent revenue takes this position outside of what I want to hold in my dividend portfolio.
The stock has started its slide down and will very likely drop below $6 per share. I really don’t know where it will bottom out but if Q3 comes in with a net loss then the floor could drop out from under FHCO.
