Engineering revamps, lands federal contracts

RECLAMATION FIRM WORKS ON ITSELF EA

June 09, 1993|By Ross Hetrick | Ross Hetrick,Staff Writer

Since being formed 20 years ago, EA Engineering, Science & Technology Inc. has helped to restore thousands of properties with environmental problems. But in the last year and a half, it has embarked on its most ambitious reclamation project -- the company itself.

Now, after wrenching layoffs, a sweeping reorganization and a new emphasis on government contracts, the company's earnings are moving up and its stock price is closing in on its level of seven years ago.

The turnaround got a big boost last month when the Hunt Valley-based company won a five-year, $75 million contract from the Baltimore District of the U.S. Army Corps of Engineers. The $15 million-a-year payout will provide the largest yearly revenue source in the company's history.

Founded in 1973 by Dr. Loren D. Jensen, a professor of ecology at Johns Hopkins University, EA Engineering specialized in planning and coordinating the cleanup of property contaminated various hazardous substances, as well as other environmental services. During the first 13 years, the company enjoyed a 15 percent annual growth rate in revenues, with profits rising at about the same rate.

In 1986, the company went public and raised $11 million, selling its stock at $10 a share -- the highest price the stock has ever reached. The stock offering also marked the beginning of major changes in the company.

In the succeeding years, the company was hurt by a downplaying by the Reagan and Bush administrations of environmental matters and then by the recession, EA President Edward V. Lower said. Its EA Muller engineering division, acquired in 1988, also started losing money in 1990.

Net income dropped by half, from a high of $1.2 million, or 47 cents a share, for the 1989 fiscal year ended Aug. 31 to $609,000, or 25 cents a share, the next year before skidding into the red in 1991 with a loss of $300,000, or 12 cents per share.

At the same time, Dr. Jensen found he needed some help. "Wearing all the hats I had was impossible," he said. That led to the hiring on June 1, 1991, of Mr. Lower, a 24-year veteran of Union Carbide Corp., as president and chief operating officer.

After 10 months of study and planning, Mr. Lower let loose the reorganization plan in the spring of 1992 that included the following:

* Selling part of the Muller division at a half-million-dollar loss in a leveraged buyout to managers and other investors. The Muller operation, bought in 1988 for $2.75 million, was to provide additional engineering services that EA didn't have. But other parts of the business, dealing with construction, did not fit. The sale reduced EA's work force by about 40 people and contributed to a 1992 loss of $1.9 million, or 76 cents a share.

* Cutting another 90 people from its work force, reducing its total employment to less than 600. Mr. Lower said this "terrible trauma" was necessary as the company withdrew from certain segments of the business where "we were not the best, or among the best."

* Reorganizing its structure so that most of its 17 offices around the country could offer a variety of environmental services, rather than specializing in one area.

* Establishing a stock ownership plan and profit-sharing program to draw employees more into the operation of the company. So far, workers have received between $100 and $500 each after the last two profitable quarters.

* Concentrating, at least for the time being, on winning government contracts, even though it sees its long-term success still in the commercial field. Government reclamation projects have gotten a boost from the decision to begin closing military bases -- all of which must have a variety of hazardous materials removed before they can be sold.

The strategy seems to be paying off for EA. For the first six months ending Feb. 28, the company had a net income of $328,000, or 13 cents per share, compared to a loss of $1.4 million, or 56 cents a share, for the same period a year ago.

Aside from the $75 million contract from the Corps of Engineers, EA picked up two Air Force contracts in September worth nearly $50 million and a 10-year, $100 million contract from the Navy in January.

Mr. Lower expects revenues to increase about 20 percent to about $54 million or $55 million for the year. Stock analysts are also noticing the change.

"EA appears to have regained control over its costs," said Laurence C. Baker, an analyst for Legg Mason Wood Walker Inc. in a March 31 research report. "It has now produced three straight quarters with a total backlog of $152 million," he said.

Mr. Baker estimated EA net sales of $54 million in the 1993 fiscal year -- a 19 percent increase over last year -- and $62 million in fiscal year 1994. Annual net income is expected to hit $900,000, or 35 cents per share, this year and $1.4 million, or 55 cents per share, in 1994.

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