Bethlehem earnings fall short Analysts are upbeat despite 4th-quarter rise of only 3.5%

February 01, 1996|By Timothy J. Mullaney | Timothy J. Mullaney,SUN STAFF

Bethlehem Steel Corp.'s fourth-quarter earnings came in below Wall Street expectations yesterday, but analysts who follow the company were surprisingly upbeat.

They noted a reasonably strong steel market and said the industry worked off much of its excess inventory by cutting production in late 1995.

"It's a pretty decent quarter, considering that steel prices went down," said Charles A. Bradford, who follows Beth Steel for UBS Securities in New York.

The company, which owns the Sparrows Point steel mill in Baltimore County, said it earned $32.4 million during the fourth quarter, or 20 cents a share.

That's up 3.5 percent from the fourth quarter of 1994, but well below the average Wall Street estimate of 24 cents a share reported by I/B/E/S International Inc.

Revenue fell 5.9 percent, to $1.15 billion from $1.22 billion, reflecting a 6.6 percent drop in steel shipments and lower steel prices in the quarter amid weaker demand, the company said.

Despite the weakness on the surface, Wall Street did not beat up on Bethlehem Steel's stock. It closed down 12.5 cents at $15.125.

"We don't believe the [major] steel companies are trading on earnings," said Robert J. Schenosky, an analyst at Smith Barney Inc.

He said the market is optimistic about steel because economic conditions that had seemed to point to red ink in 1996 are looking better.

"It's not a sense that things are wonderful; it's more that things are returning to equilibrium after a sharp decline of last year," Mr. Schenosky said.

Bethlehem says it will benefit this year from coming price increases for basic steel used in businesses such as car and appliance manufacturing and construction.

It also says it expects benefits from a shift in its business mix toward more expensive steel that is coated to resist rust.

"We think 1995 has shown steady progress," Chief Executive Curtis H. Barnette said. "We're in the businesses we think we should be in."

He said the fairly strong condition of the economy should translate into relatively high demand for steel domestically, with exports about the same as in 1995.

But the benefits are not likely to show up in Bethlehem's bottom line until later. Weather problems have cut production and damaged facilities, especially in Pennsylvania, he said, and that will hold down first-quarter profits.

Also, the company is going to have to keep driving costs down because the industry is preparing to add a lot of new steelmaking capacity by next year.

Mr. Schenosky said steel companies will add capacity to produce 10 million to 14 million tons of domestic steel annually by the end of the decade. The industry now produces about 120 million tons of steel each year.

For 1995, Bethlehem said it earned $180 million, or $1.24 a share, on sales of $4.9 billion. It earned $81 million, 35 cents a share, in 1994, on $4.8 billion of sales. The 1995 profit came entirely from the company's steel businesses. Ancillary businesses such as the ship-repair facility at Sparrows Point showed continued losses.

"The issue [for the shipyard] is largely one of adequate business," Mr. Barnette said. The company "is aware of strategic options" such as selling its nonsteel businesses or simply closing them.

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