Crown Cork shares surge on cashflow outlook
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By David Howard Sinkman
NEW YORK, July 19 (Reuters) - Shares in troubled packaging
giant Crown Cork & Seal Co. Inc. surged more than 18
percent Thursday after it posted a small quarterly profit and
assured analysts in a conference call that it could make its
short-term debt payments.
The Philadelphia-based company, which has been plagued for
months by difficult market conditions and fears of asbestos
liabilities, said in its analyst meeting Thursday morning its
cash flow would be stronger than projected, and asbestos
payments were in line with last year.
Shares rose 17.97 percent to $3.48 in afternoon trade on the
New York Stock Exchange, after earlier rising as high as $3.55
"This is a relief rally, nothing more. People were looking
for things to get worse, and are relieved that things are not
so bad," said Bear Stearns analyst Gary Schneider, who has
maintained a hold rating on the company since 1996.
With Crown Cork facing a mounting sea of liabilities,
investors have feared the packaging company would not be able
to meets its near-term debt obligations.
Crown Cork put some of these short-term fear to rest
Thursday, saying its free cash flow, which was projected at
$100 million, would be triple that amount, at about $300
million for year. With $400 million in asset sales coming up,
the company will be able to repay $400 million in near-term
asset-backed liabilities, say analysts.
Analysts warn, however, that the company is nowhere near
out of the woods, despite announcing a small second-quarter
profit Wednesday. The bottom line, said Lehman Brothers analyst
Joel Tiss, is that the company still faces pricing pressure in
a deteriorating market and is strapped with a "crazy" amount of
debt given its low operating margins.
The company owes $350 million in 2002 and $650 million in
2003 obligation, said Tiss.
The problem is not that Crown Cork borrowed too much, but
rather the bottom of its operating margins collapsed, said
analysts.
The company has also been hurt by falling pension income
and higher borrowing costs.
"This is a step in the right direction, but a real
turnaround is going to take a lot more good news than just
this, cautioned Midwest Research analyst Eric Bosshard.
Crown Cork, which also makes beverage and food cans,
plastic bottles and specialty closures, posted earnings
Wednesday of 4 cents a share in the second-quarter which ended
June 30, reversing a loss of $4 million, or 3 cents a share in
the year-ago period.
Year-ago results included a 53 cent provision for
restructuring and jobs cuts. Without that, the company posted
income of 50 cents a share during that period.
Net sales fell almost 3 percent in the quarter to $1.9
billion, hit by what CEO John Conway described as
"unsustainable low pricing in most of our markets."
Shares in Crown Cork fell about 7.4 percent in the quarter,
under-performing the S&P 500 Index which rose 5.52 percent. And
shares in the company are down more than 60 percent this year,
on Wednesday's close of $2.95.
"Remember, that this used to be a $55 a share company,"
said Lehman Brothers analyst Joel Tiss.
REUTERS
Rtr 19:55 07-19-01 |
