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Iomega drops 20% on warning

Iomega stock falls nearly 20 percent after the company warned that it expects to report a first-quarter loss in the range of between $10 million and $25 million.

Iomega (IOM) today said it expects to report a first-quarter loss in the range of between $10 million and $25 million, due to sluggish international sales.

The company's stock was off nearly 17 percent by 10:30 a.m. PT, falling to 7-3/16, down 1-7/16 from Friday's close of 8-5/8. It is the most actively traded stock on the New York Stock Exchange, with nearly 19 million shares trading hands.

Analysts had been expecting profits of 9 cents a share, according to First Call. Last year, the company reported profits of $23 million, or 17 cents per share.

Today's news follows the release of Iomega's proxy filing with Securities and Exchange Commission last Friday, which disclosed that, during 1997, company president and CEO Kim Edwards cashed in nearly $13 million in stock options.

Iomega spokeswoman Susan Stillings said that the close proximity of the two pieces of news is strictly a coincidence.

After Edwards's sell off, insiders were taking advantage of the price drop in Iomega shares after the company reported earnings in January that missed expectations.

CDA Investnet reported that insiders were purchasing shares as the stock was trading off its high of more than 16 a share in November and December. During January, two executives bought 30,500 shares at $8 per share, while one other insider exercised options for 80,000 shares and retained 51,029 of them.

The proxy said that Edwards's salary in 1997 was $450,000, and that his yearly bonus was $641,800. He also exercised 949,000 options, realizing $12.8 million during the year, based on the fair market value of the stock at the time of exercise, less the option exercise price.

At year end, he had an additional 2.2 million exercisable shares, and 1.5 million unexercisable shares.

Edwards sold the stock in November to diversify his portfolio and to purchase a second home, Stillings said, noting that the sell-off represented about 14 percent of Edwards's total holdings and marked the first time that the CEO sold Iomega stock since he joined the company in January 1995.

The manufacturer of the Zip and Jaz storage drives also said today that its first-quarter revenue will be relatively flat with last year's results, and that it expects to be cash flow negative for the quarter. During the first quarter a year ago, the company reported revenue of $361 million.

Iomega cautioned that the estimated loss for the quarter could vary because revenue and operating results will be impacted by sales through the distribution and retail channels in the remaining few weeks of the quarter ending in March.

"Our shipments this quarter in all regions are generally lower than we anticipated, particularly in our international after-market business," said Kim Edwards, Iomega's president and chief executive officer. "The shortfall in sales, combined with over $20 million in incremental marketing expenses, appear to be the main factors contributing to our expected loss."

The storage maker also expects its inventory levels to be up over its fourth quarter, which will cause Iomega to use more cash than expected during this quarter. At the end of 1997, Iomega had cash and temporary investments valued at $196.2 million.

Iomega plans to announce its first-quarter financial results on April 16, after the close of the market.