Stick-To-Itiveness : Glue Maker Sets Quick Pace to Get the Attention of Wall Street

Imagine that you rescue a company from the brink of bankruptcy, pump up sales eightfold in a decade and create a market for your products in more than 70 countries.

Now imagine all this goes virtually unnoticed, but your company gets publicized across the country for its attempt to develop a way to seal the backsides of dead turkeys.

That’s the unlucky fate of James Munn, chief executive of glue maker Pacer Technology in Rancho Cucamonga.

Munn has guided the company from the edge of insolvency in 1986 to solid profitability, sales expected this year to top $25 million and ownership of one of the most recognized brands on the market--Super Glue.

Despite its success, Pacer had been virtually ignored until 1995.

That’s when nationally syndicated columnist Dave Barry wrote a column poking fun at the company’s efforts to get into the poultry business with an adhesive that would seal birds during the processing stage to reduce salmonella outbreaks in chicken and turkey plants.

The company took it in stride--”I thought that column was pretty funny, and we don’t mind laughing at ourselves,” Munn said--but now he has set out to earn Pacer some serious attention, particularly on Wall Street.

Pacer is on schedule to earn about $1.1 million this year and expects net income to increase 20% annually for the next five years because of mushrooming international sales through distributors in locations stretching from Poland to Indonesia.

In addition, Pacer’s 1993 acquisition of Super Glue allowed it to build much-needed relationships with dozens of national retailers, such as Wal-Mart and Target.

Despite the good news, Pacer has been almost totally ignored by Wall Street. At $1 a share, the company’s stock price is no higher than it was in 1993 and not a single brokerage house analyst follows the company.

“It’s a little frustrating,” Munn acknowledged. “On one hand, we’ve had sales rising like the shape of a hockey stick. At the same time, our stock price has been as flat as a hockey rink.”

With no analysts willing to make the trek to his San Bernardino County headquarters, Munn last month began making journeys to them. He is scheduled to meet with half a dozen investment companies in as many cities by the end of June.

The “road show” approach is a rite that executives of many companies must endure to register on Wall Street’s radar screen, particularly if their company is not involved in software, telecommunications or a similarly fashionable enterprise.

While a dozen or more analysts might attend a meeting organized by a better-known company, Munn must search out individual analysts willing to hear the Pacer story in stops from San Francisco to Minneapolis.

Without analyst coverage, many companies with a small market capitalization go virtually unnoticed by investors and can languish for years, making shareholders restless and depressing a company’s value.

Munn said his presentations have been well-received so far, though no widespread buying of Pacer’s stock has been detected. He hopes more meetings will give his company the market respect he thinks it deserves.

“It’s not an unusual problem for smaller stocks,” said Jack Mathews, editor of Cheap Investor, a Hoffman Estates, Ill.-based newsletter that focuses on small stocks. “You have 90% of the analysts following 10% of the stocks, so it’s very difficult for a company like Pacer to get much attention.”

Mathews recommended Pacer to his subscribers in December and said he stands by that call even though Pacer has hardly budged from its $1 to $1.50 range during the last three years, a period when many stocks have taken off.

“They’ve got the company in order, made some good acquisitions and are headed in the right direction,” Mathews said of Pacer.

The company was headed in the wrong direction when Munn took over Pacer’s helm in 1986.

Pacer, which produced glues under private labels for other companies, was losing money, struggling to deliver its product and registering just $3 million in annual sales.

A share of the company’s stock, which fetched as much as $7 when it went public in 1978, could have been had for about 6 cents in 1986.

Munn’s decade-long plan called for the company to iron out its production and distribution problems, make inroads internationally, then make acquisitions.

The plan can be called a qualified success so far.

Sales of products as varied as glues to attach false fingernails to sealants for leaky car gaskets grew to $22.2 million in fiscal year 1996 with net income of $925,000, or 6 cents a share.

Last month, Pacer released results for the first nine months of its 1997 fiscal year, which ends June 30, showing sales of $19.1 million, up 16% from the year-ago period. Net income jumped 25% to $835,299, or 5 cents a share.

Though the Pacer story under Munn is generally positive, there have been some problems. In 1991, Pacer strayed from its core adhesives business to import Chinese barbecue charcoal. The move generated few sales and was soon discontinued.

In 1995, a sharp rise in resin and paper prices forced the company to take a onetime $450,000 write-off as it eliminated unprofitable product lines and laid off 20% of its 100-employee work force. The write-off interrupted Munn’s string of eight consecutive profitable years.

But materials prices have dropped, and those setbacks have been outweighed by Pacer’s successes, particularly its acquisitions, which include the fast-selling Pro Seal auto sealant in 1993. Though the company does not release sales by category, overall sales have increased more than 50% since adding Pro Seal and Super Glue.

“With the Super Glue acquisition, Pacer has the distribution system in major stores, which is the difficult part to get established,” said John Hawker, a broker at Hagerty, Stewart & Associates in Newport Beach who has encouraged clients to purchase the stock of Pacer, which is located in his hometown.

“Now it’s just a matter of increasing sales through that distribution pipeline. I think there’s great growth potential,” he said.

Despite the encouraging outlook, the stock has yet to break out of its holding pattern. It closed Wednesday at $1 on Nasdaq, up 6.25 cents from a day earlier.

Part of the problem is that the company’s price-to-earnings ratio is still relatively high. Even though earnings in general have been going up, Pacer has issued stock in recent years for acquisitions and an executive stock ownership plan, which has depressed earnings per share.

Company executives expect the price-to-earnings ratio to improve somewhat this year because of higher earnings and a stable number of shares outstanding (18.3 million at the end of fiscal 1996). Munn is expecting earnings per share this year of 7 to 8 cents, and additional growth over the next few years.

Looking forward, Munn said the company’s goal is to boost consumer sales by increasing shelf space for Super Glue products and to raise international sales to 50% of the company’s revenues from the current 20%.

Pacer is also in the market for companies that produce glues and sealers for industrial manufacturers of products ranging from mobile homes to swimming pools.

Now the question is whether Munn’s efforts will spur anyone to take notice of Pacer for more than its poultry efforts, which remain in the experimental stage.

“It’s a difficult situation for a small company,” said newsletter editor Mathews. “A lot of companies have struggled with the very same lack of attention that Pacer is experiencing. You’ve got to just keep doing the right things and hope that people eventually discover you.”

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Surging Sales

Pacer Technologies has more than doubled annual sales since 1992, and net income has also nearly doubled. But with earnings per share just 6 cents last year, the stock has languished mostly in a range of 88 cents to $1.38 a share in the 1990s. Sales in millions:

1996: $22.2

Source: Pacer Technology