Crown now pumping out some profits Strongest quarter of decade is helped by the Texas lockout

Stock price is higher

Some acquisitions possible, as are sales of some assets


November 16, 1997|By Sean Somerville | Sean Somerville,SUN STAFF

With help from gas-guzzling passenger trucks, low inventories and a favorable crude oil market, Crown Central Corp. early this month reported its strongest quarter in more than seven years.

The $11.3 million third-quarter profit -- $1.16 a share -- also marked Crown's fourth consecutive quarter both in the black and better than the year-ago periods -- the Baltimore-based company's longest such streak since 1989.

Its Class B stock last week was trading above $19 -- up 81 percent from March, when it hit a 52-week low of $11.125. And for the first time since 1990, Crown will likely report an annual profit.

With lifting fortunes amid industry consolidation, Crown Chairman and Chief Executive Officer Henry A. Rosenberg Jr. is talking about possible deals.

"If somebody or something comes to our attention, sure we'd have to take a look at it," he said in an interview last week. "It's just a matter of fact. It's a different world out there."

He said Crown would prefer to be the buyer, possibly adding to its two Texas refineries, in Pasadena and Tyler. Crown might also add to its 343 gasoline stations in the mid-Atlantic and Southeast regions. "We have a few pieces of retail on the acquisition side that we're working on," he said.

Rumors of outside interest in Crown's refineries may have boosted Crown's shares in recent months, said Alvin D. Silber, an industry analyst for Herzog, Heine, Geduld in New York.

Rosenberg's reply: "That's always been something that's out there. And I don't say no. And I don't say yes."

The prospect of Crown entertaining suitors of any kind represents a reversal from recent years, when the company's fortunes fell.

The company, which traces its Baltimore roots to 1917, lost almost $109 million between 1994 and 1996, and the value of its stock, which traded in the low $30s in 1993, sank.

As if its financial woes weren't bad enough, Crown became mired almost two years ago in an ugly labor dispute with workers at its Pasadena refinery near Houston. Crown locked out about 250 members of the Oil, Chemical and Atomic Workers union (OCAW) in February 1996, when talks broke down over a company proposal to save Crown $2.5 million a year in labor costs.

Since then, the company has faced attacks on virtually every front. Critics have charged Crown with discrimination, worker safety violations and hazardous chemical releases.

Crown, which has about 2,900 employees overall, contends that the complaints are part of a union smear campaign. The company also said the lockout is saving about $6 million a year at the refinery, where 125 people are working. "We're operating the plant with half the number of people that we had in there with the union," Rosenberg said. "And we're running it better than ever."

Eric Scherzer, international representative for OCAW, is skeptical. "We don't think they're achieving any savings at all," he said.

The two sides have met occasionally with a mediator, but the 21-month-old lockout has shown no signs of ending. In the

meantime, stable crude prices, full refineries and high demand have boosted refining margins and helped Crown.

"Obviously, there's an element of the rising tide," Silber said. "But there could be fundamental progress in managing their business. I suspect that's part of the improvement also."

Crown acknowledges that the company is benefiting largely from market conditions. While refiners invested heavily to help plants comply with the Clean Air Act of 1990, they also engineered changes leading to increased capacity and the ability to produce higher priced transportation fuels. That capacity has peaked, but demand is still climbing. Crude oil, which spiked above $25 last year, has sold in the $19-to-$21 range over the last eight months.

John E. Wheeler Jr., senior vice president for finance, said the company's gross margin increased from $2.20 a barrel to $3.18 a barrel in the third quarter.

"This was anticipated by the prognosticators in the industry in about 1995," Wheeler said. "It has just taken a little longer than people expected."

The higher margins are especially beneficial to Crown, which sells about half of the gasoline refined at its Pasadena refinery on the open market, much of it in 25,000 bulk barrel lots. "We're highly leveraged toward what's happening to those bulk barrels," he said.

The company doesn't give all the credit to market conditions. Its retail costs, for instance, have decreased $5 million from the year-ago period. "We're doing a better job with managing our business," Rosenberg said.

Managing costs helped Crown buffer the blow from the lower retail margins that typically go hand-in-hand with higher refining margins. One factor that has helped Crown in recent quarters: strong margins in refining and retail.

Refining margins won't always be as strong. They've already tightened this quarter. While events in the Middle East introduce uncertainty, the overall forecast for the company -- and the industry -- is good, Wheeler said.

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