Investors win when this company keeps tanking.

• Author: Breznick, Alan
• Position: Money Matters - Blue Rhino

Rhinos love to eat and wallow in the mud. Billy Prim didn't really care about those characteristics when he dubbed his company Blue Rhino Corp. in 1994. He picked the name to get attention. Five years later, his company was acting like its namesake. In a furious effort to grow, it was chomping through the $32.6 million it got in a 1998 public stock offering. And it found itself mired in accounting woes that sullied its reputation on Wall Street.

That debacle was followed by two years of losses. But Winston-Salem-based Blue Rhino (Nasdaq: RINO), which has kept growing and kept its nose clean, seems to have dragged itself out of the mire.

The company offers propane users convenient places to trade empty tanks for full ones -- without the mess and cost of refilling. Before its IPO, Blue Rhino had about 6,600 cylinder outlets, typically at chain stores such as Wal-Mart and Home Depot. A year later, it had about 18,500 and room to grow. Company executives eyed a second public offering of 2 million shares.

They shelved their plans after restating earnings in February 1999 because of accounting mistakes totaling about $7 million. A quarterly gain became a loss. The stock plunged 36% in two days. Blue Rhino lost money in 2000 and 2001 largely because of higher gas and distribution costs. But it reworked its supply and distribution contracts and managed to keep growing through debt and private equity. Debt soared to $53 million, about 100% of equity, at the end of 2001 before it was cut to 50%, partly through a $10.9 million private placement in April.

Blue Rhino was able to add about 8,500 outlets in fiscal 2000 and 2001 -- far short of its 9,500-a-year goal. That left an opening for its closest rival, Pennsylvania-based AmeriGas Partners. "If we had had the capital then, we would have had no competition," Chief Financial Officer Mark Castaneda says. But the company, with about 26,000 outlets, is profitable again. It ended its last fiscal year in July with net income of $8 million on sales of $206 million. In 2001, it lost $4.7 million on sales of $139 million.

To stoke demand for propane and smooth out the seasonal nature of its business, which heats up in late spring and cools with the weather, Blue Rhino sells propane-powered products such as patio heaters. The stock has more than doubled this year, hitting $14 in mid-September. But with a price-earnings ratio of about 26, it isn't dirt cheap.

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