Pennzoil-Quaker State Co. warned that it will declare a pre-tax charge of up to $20 million for the fourth quarter of 2001 due to the bankruptcy of Kmart and currency devaluation in Argentina.
The company indicated that most of the charge was due to the write-off of receivables from Kmart, the second-largest U.S. discount retailer, which is trying to reorganize after filing for bankruptcy protection Jan. 22.
A spokesman emphasized that charge may ultimately end up being less, if Pennzoil-Quaker State, the top U.S. motor oil brander, receives at least a portion of what is owed by Kmart. The spokesman also stated that, although it hopes to see Kmart stay in business, Pennzoil-Quaker State would not be hurt if the discounter folds. Kmart is responsible for 2.5 percent of Pennzoil-Quaker States sales.
We have bigger customers, he said. Wal-mart is substantially bigger. And under the worst-case scenario, if Kmart does not emerge from bankruptcy, sales that we lose through Kmart would be picked up by other retailers.
Valvoline, the number three U.S. motor oil brand and another of Kmarts major motor oil suppliers, said the bankruptcy filing will not affect its earnings.
The charge announced by Pennzoil-Quaker State will be in addition to $27 million of previously announced after-tax charges, taken in the third and fourth quarters, to pay for restructuring. The Houston-based automotive consumer parts company plans to announce its annual earnings next week. The company had recurring net income of $49.4 million in 2000 and expects similar results for 2001. Total revenue in 2000 was $3.2 billion.