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Tuesday, April 12, 2016

Is Gibson In Financial Trouble?

Gibson Brands imageThere are signs that Gibson's move to diversify isn't working out as planned. Moody's Investor Service has downgraded Gibson Brands (formerly Gibson Guitar Corporation) credit to junk status, and according to reports, the company has put up two of its Nashville warehouses for sale as a result.

Moody's gave 3 reasons for the downgrade:

   1. "Weak operating results" as a result of a poor reception to the company's 2015 guitar line.

   2. Frequent management changes in its finance department.

   3. The company's recent move into consumer electronics and the associated risks of doing so.

Starting in 2012, Gibson began to buy consumer electronics company like Onkyo and Teac. Prior to that, it had purchased the Stanton Group, which included Cerwin-Vega, Stanton DJ and KRK. In 2014 the company acquired Woox, a Singapore-based company specializing in consumer electronics accessories.

According to an article by Ted Green, this most recent acquisition left the company over-leveraged and the company is facing $100 million in payments over the next 22 months. Speculation is that the company doesn't have the cash to make these payments, which is the reason for the sale of the two Nashville warehouse properties.

Gibson has done a number of business maneuvers in the last few years that have been head-scratchers, but the fact of the matter is that the company is trying to grow by expanding beyond MI. The problem there is that unless you know the other markets well, it's very difficult to play in the land of the really deep pockets. Let's see what happens over the next few months.

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