Hung out to dry: battered by problems inside and outside the company, Fieldcrest Cannon refuses to throw in the towel.

• Author: Scheer, Lisa

Battered by problems inside and outside the company, Fieldcrest Cannon refuses to throw in the towel.

CEO Jim Fitzgibbons leans back in a chair, hoisting his long legs up to rest on a polished conference table in his office at Fieldcrest Cannon Inc.'s red-brick Kannapolis headquarters. He looks relaxed, despite the serious problems the giant sheet-and-towel maker faces. On a shelf behind him lies a white crash helmet embossed with a shamrock. Down the rough road Fieldcrest has been rolling, Fitzgibbons might find it useful.

The company, the nation's third-biggest home-furnishings manufacturer, is coming off a tough year. In 1995, it lost $20.2 million on $1.1 billion in sales. The loss amounted to $2.28 a share, after taking $1.36 a share in restructuring charges. Flat retail sales and skyrocketing cotton prices have squeezed profits. On Wall Street, several analysts slashed earnings estimates and downgraded the stock. And the bad news keeps coming. In late April, the company announced sales had dipped 2.7% in the first quarter. It lost $1.8 million, 20 cents a share, after restructuring charges.

Not too long ago, Fieldcrest appeared to be turning things around. Return on equity increased from 0.6% after Fitzgibbons, came aboard six years ago to 14.5% in 1994, when the stock, rising steadily, hit a high of $34.38. Now Fieldcrest is struggling again. Are its dismal financial results the darkness before dawn or just more darkness?

Some analysts see daylight ahead. "I think Fitzgibbons has made some smart operating decisions that will in time be additive to profitability," says analyst Jack Pickler of Prudential Securities in Richmond, Va.

But the company faces myriad problems, many stemming from the big debt hangover brought on by an acquisition binge. The biggest was in 1986, when Fieldcrest Mills bought Cannon Mills for $321 million in cash and notes, merging two of the state's best-known textile companies. With sales now limping along, the debt makes it hard to scare up cash to modernize - a crucial failing in Fieldcrest's markets. Last year Fieldcrest scrapped plans to upgrade old factories to pay down debt.

In this business, a company makes money by becoming a low-cost producer. That way, when cotton costs spiral out of control and the retail environment is lousy, there's still some breathing room in profit margins. The longer it takes to modernize, the lower profits will be.

Fieldcrest's rivals have been pumping hundreds of millions into modernizing factories, and it shows: Last year, Fieldcrest's operating-profit margins (before interest expense and taxes) were 1.9%, compared with 11.1% at West Point, Ga.-based WestPoint Stevens and 6% at Fort Mill, S.C.-based Springs Industries. Springs posted $2.2 billion in sales last year; WestPoint, $1.6 billion. While Fieldcrest plays catch-up, its giant more-efficient competitors will be trying to take a chunk out of its hide.

It's a brutal, cutthroat industry. Consumers buy only so many sheets and towels in a year. "Each of us is banging against the other at every opportunity for business," Fitzgibbons says. Fieldcrest could reverse a drop in market share by a single, high-dollar placement with a giant retailer, he says. But, he adds, "I don't see a sea change coming."

He's feeling the pressure as the company restructures. "1995 was a difficult year, and I'm glad to see it over," he says. "It's no fun to be the head of a struggling ship."

"He's in a tough business, a business people were writing off 25 years ago," says Humpy Wheeler, president of...