W. R. Grace & Co.'s chief executive said yesterday that, thanks to high oil and natural gas prices and a strong dollar, earnings growth at the Columbia chemical maker this year and next will likely be less than it had expected.
That news, coupled with Standard and Poor's announcement Monday evening that the company would be removed from the S&P 500 as of Friday, drove shares down 63 cents, or 28 percent, to $1.63, a 52-week low and their first close under $2.
Bethlehem Steel Corp. will also be removed from the index. The news dropped its shares 31 cents, or 15 percent, to a new low of $1.81.
Concern over Grace's liability related to asbestos lawsuits has driven the stock down 88 percent over the past 52 weeks. Its high during that period of $14.94 was reached in January.
This year, the company had said it expected revenue growth for 2000 of 5 percent to 7 percent and earnings growth of 12 percent to 15 percent.
At a chemical conference yesterday, Grace Chief Executive Officer Paul J. Norris told investors that the company is now expecting operating revenue growth of 4 percent to 5 percent and operating earnings growth of 10 percent to 12 percent.
The company had also targeted "double-digit" earnings growth for 2001, but Norris said yesterday that earnings from core operations would likely grow 5 percent to 10 percent.
"Our focused and aggressive productivity and growth programs have been essential in at least partly counteracting the negative impacts of rising natural gas prices, petroleum-based raw material costs and the strength of the U.S. dollar," Norris said in a statement that was released in order to comply with the Securities and Exchange Commission's disclosure requirements.
"If the euro was valued as it was last year at this time, our operating revenue and earnings growth would have been between 6 and 7 percent and 13 to 14 percent, respectively."
Company officials would not elaborate on Norris' statement.
The weak euro is particularly important for Grace because nearly 29 percent of its sales last year came from Europe.
In October, Grace beat analysts' estimates by reporting third-quarter net income of $34 million on sales of $395 million, compared with income of $42 million a year earlier on sales of $372 million.
Grace could be forced to pay about $1 billion in damages from asbestos-related lawsuits stemming from insulation the company made several decades ago that contained the cancer-causing material. Owens Corning, another asbestos defendant, recently filed for Chapter 11 bankruptcy protection.
David Blitzer, chief investment strategist for S&P, said Grace and Bethlehem were being removed from the S&P 500 for "lack of representation."
"That means if we were to look at this company today as a potential candidate, it's not even close to being in the running," he said.
Generally, companies must have a market value of about $3 billion to $4 billion to be considered for the index, he said. The average market capitalization of companies on the index is $23 billion.
Grace now has a market capitalization of about $114 million, and Bethlehem Steel, which employs about 4,000 at its Sparrows Point plant and lost $35 million in the third quarter, has a market cap of just under $232 million.
"We're disappointed because we think we have a strong fundamental business and good growth in the company, but there's a cloud over our earnings because of asbestos," said William Corcoran, Grace's vice president of public and regulatory affairs. "We're really disappointed that the market is not trading the stock on Grace's fundamentals but on what happened at Owens Corning."
