Crown has worst quarter in a decade

October 29, 1994|By Kim Clark | Kim Clark,Sun Staff Writer

Hurt by lower gasoline prices and an unexpected surplus of cleaner-burning diesel fuel, Crown Central Petroleum Corp. reported its worst quarterly loss in 10 years.

The Baltimore-based gasoline refiner and marketer said it lost $26.6 million on revenues of $468.3 million in the three months ended Sept. 30. The results represented a substantial decline from a loss of $3.3 million on sales of $455.7 million a year earlier.

"It was a very lousy third quarter, no question about it," said company spokesman Joseph M. Coale.

The losses came as larger, integrated oil companies reported strong earnings, said Arthur W. Tower, an industry analyst for Howard, Weil, Labouisse, Friedrichs in New Orleans. The smaller independents, including refiners and retailers, "are in a world of hurt," he said, because of the increasing expense of meeting environmental regulations.

In fact, the bulk of the three-month loss was attributed to Crown's decision to abandon its project to add equipment at its Pasadena, Texas, refinery that reduces sulfur content in diesel fuel. Two years and $25 million after embarking on the project, which was slated to cost at least $75 million when completed, Crown officials decided to sell the hydrodesulfurization equipment because of a glut of the less-polluting fuel, Mr. Coale explained.

He said the industry overestimated demand for the low-sulfur fuel, which is now being introduced in cities that suffer from poor air quality, such as Baltimore.

Crown, which can produce the reduced sulfur diesel at another refinery it owns, expects to sell the equipment for $4 million, he said. The company recorded a loss of $16.8 million in the third quarter to account for the equipment's value after depreciation.

The rest of the losses were because of tight margins between the oil that Crown buys and the prices it received for gasoline and other refined products.

Robert Tattersall, manager of the Toronto-based Saxon World Growth fund, which holds about 12,000 shares of Crown stock, said yesterday that the quarterly loss doesn't bother him much.

He bought into the company because most other investors didn't like the stock, which has followed an irregular decline since late 1989. Crown Central's Class A common closed down 50 cents to finish at $17.125 yesterday. Class B shares closed at $15.50, down 62.5 cents. If the company can turn around, and report profits for three or four quarters in a row, the stock should rise markedly, he said.

Mr. Coale said company officials were "cautiously optimistic" about the fourth quarter.

Despite warnings last week that delivery problems resulting from a pipeline break in the Houston area could hurt fourth quarter earnings, Mr. Coale said the impact might be small as some of the lines were expected to be repaired by early next week.

In addition, he noted, sales of merchandise through Crown gas station convenience stores have been up recently, jumping 42 percent in the third quarter compared with a year ago. Lower prices, resulting in lower profit margins, have persuaded shoppers to buy extra items, he said.

"The key is multiple sales. Those are the magic words," Mr. Coale said.

In addition, Crown's security division -- which is marketing a video monitoring system for convenience stores -- marked its third straight profitable quarter, he said.

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