Picture Is Not Bright at Drewry Photocolor

The folks at Drewry Photocolor won’t release the kinds of public reports that other firms give freely. And, although Drewry is in the film-processing business, there are no photos in last year’s annual report.

Looking at the company’s results, it’s no wonder. Drewry lost $196,126 for the fiscal year ended last April 26, and earned just $32,699 the year before. Sales last year fell 24%, to $29.9 million. The company has rebounded a bit this year, but profit margins remain slender, and sales for the first nine months were below those of the previous year.

Meanwhile, Drewry’s thinly traded stock languishes at about $6 a share, a dismal state of affairs considering that it went public in 1972 at $10.

The truth is, Burbank-based Drewry is worth more dead than alive. Finance Vice President Harold W. Ellis acknowledges that, if the company were sold, it might bring $6.5 million or better, offering beleaguered shareholders $11 a share or more.

Twice the Going Rate

That is almost twice the going rate for Drewry shares. Even in a liquidation, Ellis said, Drewry’s cash, real estate, cars and equipment would fetch more than $6 a share.

Unlocking all that value is something else again. Ellis says there are no plans to liquidate or sell, and, with 59% of the stock held by insiders, including 39% by the founding Drewry family, no one is in a position to force a change.

“It sounds like a pretty sleepy company,” said Peter Enderlin, who follows the photo industry for Smith Barney, Harris Upham. He said most photo finishers have after-tax profit margins of 5% to 7%, contrasted with a measly 1% for Drewry for the nine months ended Jan. 24.

But, in Drewry’s case, the gold--perhaps silver is more apt in speaking of a photo finisher--is in the balance sheet, where book value (assets minus liabilities) was $10.82 a share when the third quarter ended on Jan. 24.

That includes $3.60 a share in cash and certificates of deposit. Best of all, Drewry owns its 68,000-square-foot main facility in Burbank, and another 28,000-square-foot site in Hayward. The Burbank plant iscarried on the books for about $1 a share, or about $600,000 in all, is actually worth about $4 million or $5 million, according to Burbank realty specialist Mel Poles of Zugsmith & Associates.

In other words, the cash, CDs, and Burbank plant alone are worth about $11 a share.

Despite the company’s asset value, the present bull market has passed Drewry by. No analysts follow the firm, and Drewry has only about 360 shareholders. They rarely buy or sell any of the 592,000 outstanding shares.

“A big month is 2,000 or 3,000 shares” traded, said Ellis.

Founded in 1946 by William W. Drewry Jr., the company is now run by William W. Drewry III, the 48-year-old chairman and president who inherited the post from his father. In large part a regional firm, Drewry is nevertheless among the top 10 or 15 film developers in business today.

The younger Drewry declined to be interviewed but apparently is bent not on selling or liquidating, but rather on restoring the company to profitability, a tall order in the murderously competitive wholesale photo-finishing industry.

Drewry develops film for 3,100 individual supermarkets, drug stores, and other outlets in California, Colorado and Washington State. Drewry picks up the film and delivers finished photos to the stores overnight. It also distributes photo equipment to some retail customers.

Americans are taking more and more pictures--13.9 billion last year alone--yet the $4-billion photo-finishing business is mired in overcapacity and price-cutting. The wholesale end, accounting for 55% of the overall market, is most competitive of all.

Wholesale prices have not risen in five or six years, and have actually dropped over the last 15 or 20 years, according to Fotomat marketing director Randy Henry. Worse, new technology has enabled small operators to set up neighborhood mini-labs providing quick, cheap, on-the-spot service.

Thus it isn’t surprising that Drewry has had trouble making money. But the competitive marketplace is not solely to blame.

Acquisition Turns Sour

Drewry also shot itself in the foot with a disastrous acquisition. In January, 1984, it paid $5 million for Bennets Photo Service, another wholesale photo finisher, which had been losing money but seemed ideal as a merger candidate.

Bennets competed with Drewry in both Northern and Southern California. It had plants near Drewry’s, and offered additional business in Denver and Tacoma. But, soon after the acquisition, Ellis said, Bennets’ biggest customer, accounting for 14% of Drewry’s sales after the acquisition, left. That turned the deal into a nightmare.

Drewry’s dividend is a sign of its problems. Paid out at 20 cents a share in the early 1980s, it has been zero since July. The company also says there have been layoffs, and that employment is now under 600, although it will not give details.

Whatever the causes of Drewry’s troubles, management avarice doesn’t seem to be among them. The company’s offices are Spartan, and the July, 1986, proxy statement says chairman Drewry is paid just $92,848. Including him, the entire executive suite of six pulls down a mere $402,151.