With new, more restrictive credit agreements in place, RailWorks Corp. expects to pull out of its financial crisis and return to profitability early next year, company officials said in a conference call with analysts yesterday.
The Baltimore County company, which provides services and products to the rail industry, violated its credit terms twice this fall after being stung by higher interest rates and a slowdown in transportation spending. Lenders provided a temporary waiver that allowed it to continue operating until a final amendment to its credit agreement was signed this week.
The new terms reduce the company's revolving-credit line by $50 million, or about one-third, and tighten repayment terms on portions of the company's debt, which totals about $380 million.
RailWorks Chief Executive Officer John G. Larkin said the credit agreement gives the company a "modest cushion" as it implements a retooled business plan. The company announced a reorganization plan in September that involved streamlining operations, paring its corporate staff and seeking the possible sale of noncore businesses.
"I think they've taken the right steps and appropriate actions that needed to be taken," said Joel Levington, an analyst with S&P Ratings Services. "But this is a month-to-month situation there until you start to see some better visibility into the second half" of 2001.
RailWorks took a $48 million noncash charge against third-quarter earnings as part of its restructuring, and expects to take another charge of between $3 million and $3.5 million in the fourth quarter. But with a backlog of $900 million in transportation contracts, the company expects to dig out of its financial hole by the middle of 2001.
After an anticipated first-quarter loss of 10 cents to 15 cents per share, RailWorks expects to post a second-quarter 2001 profit of 20 cents to 25 cents per share. For the year, company officials are projecting revenue of about $800 million and earnings of 65 cents to 75 cents per share.
The earnings outlook was met with some skepticism by Levington, who questions the company's ability to increase revenue in 2001 when projections call for little change in the company's core markets.
"There are a lot of `ifs' in there," Levington said. The company's ability to pick up new business could also be restricted by its diminished credit line.
In yesterday's conference call, Larkin conceded that the company's forecasts assume some rebound in transportation markets, but he said some of that recovery is under way. RailWorks expects to bid on about $500 million worth of transportation projects in the next six months, which could push its backlog to an estimated $925 million next year.
"It's our view that the market is very target rich right now," Larkin said.
RailWorks employs about 30 people at its Riderwood headquarters and more than 3,500 nationwide. Its shares declined 6 cents yesterday to close at $2.44.