Goodrich spinoff needs sales in scale with price.

• Author: Speizer, Irwin
• Position: Money Matters

Life doesn't get much better for CEOs than it was for Ernie Schaub in February. The head of Charlotte-based EnPro Industries Inc. (NYSE: NPO) recounted to analysts a year in which EnPro earned $33.2 million (after losing $3 million in 2002) and its stock shot from $4 a share to nearly $14--a 250% gain.

As he ticked off the good omens for 2004--improving sales of the company's sealants, bearings and engines, plus five victories in six asbestos lawsuits--Schaub predicted another strong year. But he also issued a caveat. "We can't promise our shares will perform as well in 2004 as they did last year."

That tepid disclaimer--as if any sane investor would bank on the price growing another 250%--did little to curb investor interest. In the days after his comments, EnPro stock kept climbing, hitting a 52-week high of $20.17 Feb. 19 before stalling. It ended March at $18.92.

Part of the growth can be explained by investors' initial disregard for an unproven company, which depressed the price after EnPro was spun off from Charlotte-based Goodrich in 2002. That was followed by a surge in popularity when EnPro proved last year that it could operate profitably. It also benefited from steps taken by Congress toward a law that would help companies manage asbestos liability, spokesman Don Washington says. Passage could come this year.

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But the company's top line has been far less impressive than its bottom line. Sales grew 3%, to $730 million, in 2003. If it hadn't benefited from favorable currency exchange rates, especially a stronger euro, sales would have dropped 2%.

Farukh Farooqi, an analyst with Jefferies & Co. in Short Hills, N.J., isn't worried. He says EnPro, a key niche player...