Year-end Financials Lack Oomph


Several lubricant and additive companies this week reported year-end financial results that, while lackluster, hint at the beginnings of a rebound for the industry.

Pennzoil-Quaker State Co. ended 2001 in the red but showed improved results for continuing operations and projected further improvement in 2002. Lubrizol Corp. reported record revenue but lower profits and an uncertain outlook. Ethyl Corp. lost money but progressed on its consolidation plan while also improving continuing operations. Petro-Canada and Crompton also reported improvements in lubricants and related activities.

Pennzoil-Quaker State had a net loss of $33.9 million in 2001, versus a loss of $87.8 million in 2000. Excluding $62.1 million in one-time charges – such as restructuring expenses and write-off of receivables from bankrupt Kmart – and activities that were sold last year, the Houston company earned $51.6 million, or 65 cents per share. That was 5.5 percent better than $48.9 million, or 62 cents per share, in 2000.

Recurring operating income for the companys Lubricants division fell from $156.2 million to $137.3 million, as revenue fell 11.5 percent due to sale of non-strategic businesses. This slide was more than compensated, however, by performance of Excel Paralubes, a base oil refining joint venture with Conoco. Pennzoil-Quaker States recurring operating income from the partnership grew $24.2 million to $53.1 million, thanks to higher base oil margins. During 2001, Excel Paralubes margins averaged $26.30 per barrel, 32.3 percent better than the $19.80 per barrel averaged a year earlier.

Jiffy Lube Internationals operating income dipped from $27.9 million to $27.6 million. Consumer Products saw recurring operating income drop from $34.2 million to $24.5 million.

During a conference call Tuesday, President and Chief Executive Officer James J. Postl fielded pointed questions from stock analysts, who noted that management predicted two years ago that Consumer Products would be a primary vehicle for growth. Postl blamed the Consumer Products performance on pathetic management of distribution and warehousing but insisted that the problems have been fixed. He predicted that the divisions margins will rise from 6.9 percent to the mid-teens by 2003.

Overall, Postl contended that the companys performance improved markedly during the second half of the year and that an improving market will lead to better results this year.

While certain marketplace factors such as high gasoline prices resulted in generally soft demand for automotive products in the last couple of years, many of these market forces are trending back in our favor, he said. We believe these positive trends will accelerate during 2002 and anticipate double-digit year-over-year earnings growth.

Lubrizols net income slid from $118 million to $94.1 million, or $1.84 per share, despite record revenues of $1.84 billion. The Cleveland, Ohio, additive maker raised prices and lowered manufacturing costs, but these achievements were outweighed by higher raw material costs and unfavorable foreign exchange rates. Selling, testing, administrative and research expenses rose, partly due to development programs for new engine oil standards.

Our outlook for 2002 reflects a high degree of uncertainty about the world economy and the timing of the anticipated recovery, Chairman, President and Chief Executive Officer W.G. Bares said. He noted that sales began to improve in January but have not reached last summers levels. Cost containment, he suggested, will be the priority for 2002.

Ethyl recorded a whopping net loss of $102.8 million, after a profit of $61 million in 2000. However, the 2001 results included $112.6 million in non-recurring charges – including a pension settlement, asset write-offs and early retirement pay-outs – stemming from a downsizing program announced in 2000. The 2000 results had included a $51.3 million gain from the pension settlement.

Excluding non-recurring items, Ethyls income from continuing operations increased in 2001, from $9 million, or 10 cents per share, to $10 million, or 12 cents per share. The Richmond, Va., additive maker said that almost all of its major product lines grew during the second half of 2001. President and Chief Executive Officer Thomas E. Teddy Gottwald said the company now has a cost structure allowing it to compete for the long run and that its customer base is growing.

Ethyl said that it hopes to reach agreements during the first quarter to extend debt that comes due in August. Previously, the company said it hoped to secure that financing by the end of 2001.

The company also reported that the New York Stock Exchange threatened to stop listing Ethyls stock after its price went 30 consecutive days in November and December without closing over $1 per share. The price rebounded to stay above $1 for the last three weeks of January.

Several other companies also reported encouraging results of lubricants related businesses. Petro-Canada reported marked improvement in lubricants performance due to higher base oil margins and increased sales of value-added products. It did not provide details.

Crompton Corp. reported a sharp overall decline in performance but an 8 percent increase in sales of petroleum additives, thanks to motor oil reformulation.

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