Owens Corning to lay off 2,200, close plants as earnings tumble Increased competition, falling home insulation prices prompt action

Manufacturing

January 10, 1998|By BLOOMBERG NEWS

TOLEDO, Ohio -- Owens Corning said yesterday it will fire 2,200 people, or 9 percent of its workers, close plants and report 1997 earnings well below analysts' estimates because intense competition in the home-insulation business has pushed down prices.

The largest maker of insulation, known for its pink brand, said it will take a $170 million charge for the actions, about $100 million of it in the fourth quarter. It said it expects 1997 earnings of $3.00 a share before the charges, compared with the $3.67 analysts had expected. It earned $257 million, or $4.65 a share, from continuing operations in 1996.

The cost-cutting moves were long overdue at the company, some analysts said. Owens Corning is resorting to the measures after an unsuccessful attempt to boost or maintain prices as competitors added insulation-making capacity and cut prices to gain market share in North America.

"There's clearly overcapacity in the industry," said Gary Schneider, an analyst with Bear Stearns. Prices have dropped "even though new housing starts, new housing completions and disposable income numbers all are very positive," he said.

Owens Corning shares fell $1.63 to $32.

Owens Corning's problems illustrate the perils of declining prices, as highlighted in a speech a week ago by Federal Reserve Chairman Alan Greenspan, who said deflation can be as bad for the economy as inflation. In such an environment, companies must cut costs to remain profitable.

Owens attempted to fight the deflationary trend in its industry but failed, the company said.

"Despite our attempts to increase prices in certain insulation markets through the elimination of rebates and other actions, we have been unable to stop our selling price from eroding while standing firm on our strategy of maintaining our market share," Chief Executive Glen Hiner said in a statement.

CertainTeed, the U.S. arm of France's Cie. de Saint-Gobain SA, has been especially aggressive in its expansion and pricing, analysts said.

In addition, big retailers such as Home Depot Inc. have been using their buying power to get lower prices from Owens and other suppliers.

North American residential insulation prices declined 10 percent in 1997, Hiner said. The company had expected them to drop 5 to 6 percent.

Though the price slump is an industrywide problem, Owens Corning has been slow to cut costs and is hurting worse than competitors, James Kelleher, an Argus Research analyst, said.

"Owens has been a little lax," he said. Cost-cutting has "never been a constant" at the company, he added.

Owens Corning's estimate indicates it expects earnings of 8 cents a share in 1997's fourth quarter, based on its earnings for the first nine months of $164 million, or $2.92 a share. Analysts had expected fourth-quarter earnings of 82 cents a share. It earned $1.32 a share in the 1996 quarter.

The company's shares have taken a beating because of its disappointing performance, falling about 35 percent from their 52-week high of $49.88.

Owens Corning said it will close its fiberglass insulation plant in Candiac, Quebec, eliminating 275 jobs. It also will cut 175 jobs at corporate headquarters in Toledo, with the rest of the cuts coming in operations around the world as the company combines plants, drops low-margin products and simplifies product lines.

In addition, it will reduce operations at Belgian and Norwegian plants that make composite materials and engineered pipe.

Pub Date: 1/10/98

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