Bethlehem Steel Corp.'s continuing $550 million expansion and renovation moves have collided head-on with a sickly economy, slumping steel prices and higher production costs, producing a 78 percent drop in third-quarter net income, the company announced yesterday.
Bethlehem's earnings of $10 million for the period that ended Sept. 30 fell markedly short of the $47 million in profits posted in the same quarter a year ago, but the company had expected the decline.
"I was expecting just a very, very modest profit, and that's pretty much what we got," said Anderson & Strudwick analyst Michael Via, who pointed to the slowing economy as the prime culprit behind rising costs and weak earnings.
Similarly, for the first nine months of this year, Bethlehem logged a profit of $53 million, nearly 73 percent lower than last year's $196 million.
The company's sales were $1.2 billion for the third quarter and $3.7 billion for the first nine months of the year, down from $4.1 billion.
Steel shipments, weighed down by production slowdowns at the company's Sparrows Point plant, slumped 6 percent during the summer, the Bethlehem, Pa.-based company said.
The Sparrows Point plant, which accounts for about 30 percent of the revenues at the nation's second-largest steel producer, has already announced price increases ranging from 4 percent to 8 percent in hopes of offsetting rising energy and overhead costs.
In addition, the company's Sparrows Point shipyard -- a perennial money loser -- has trimmed its work force by a third to further rein in costs. The yard now has 750 employees, down from 1,130 in September, Bethlehem said earlier this week.
The company is looking at the long term, Mr. Via said.
"Bethlehem Steel operates in a world marketplace, and they have to play 'keep up with the Joneses' because the Joneses are in Japan, Germany and elsewhere, not just in the United States," he said.
Bethlehem Steel is investing more than $200 million in new and improved equipment at Sparrows Point that is designed to make the steel giant more competitive worldwide.
New furnaces and other equipment being installed at the plant will be used to produce galvanized steel sheets for construction and non-automotive applications.
Wall Street took the earnings decline in stride. Bethlehem stock closed up 25 cents at $11.375 yesterday.
Bethlehem Chairman Walter F. Williams estimated that fourth-quarter steel shipments will rise slightly above third-quarter levels. Next year, overall domestic shipments probably will decline, Mr. Williams said.