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Tower Sees 3Q Sales Earnings Shortfalls
GRAND RAPIDS — Tower Automotive is working through the most difficult year of its nine-year history.
Operating income during the third quarter ended Sept. 30 declined 43 percent to $16 million from $28 million reported for the same period a year ago. The auto parts supplier experienced a net loss for the quarter of $1 million, compared with net income of $10 million in the comparable quarter last year.
Although revenues for the third quarter increased 4 percent to $558 million, 2000’s third quarter results did not include revenues from the company’s Asia operations, as did this year’s results.
Revenues for the first nine months of the year, which included $270 million from operations in Korea and China, declined 5 percent to $1.8 billion, compared with the same year-ago period.
Operating income for the first nine months declined 44 percent to $98 million from $175 million posted in 2000. Net income for the nine months was $28 million, or 63 cents per share, versus $86 million, or $1.54 per share, last year.
The company attributes the third quarter decline to unplanned volume declines in the U.S. and Canada regions it serves and to the continued costs of new product launches.
Sales for the United States were down $96 million for this year’s third quarter, according to Chairman Tony Johnson.
“The reality is we had considerably fewer sales in the region of the world where we make most of our money, which is in the United States,” Johnson said. “The thing to note is what’s pulling margins down in addition to volumes is launch, and launch probably cost us $7 million in this quarter.”
The company had informed investors in its second-quarter conference call that it would incur about $20 million in new product launch costs this year, Johnson noted.
He now estimates that figure is closer to $25 million to $30 million, because those costs are running $6 million to $7 million per quarter. He doesn’t expect to see the complete elimination of launch costs next year, but he’s certain it won’t be anywhere near the levels the firm experienced this year.
The company has been looking at its current asset base, trying to find ways to do more with less by using fewer facilities, said Dugald Campbell, president and CEO. That effort started a year ago with closure of the company’s Kalamazoo operations.
As part of that continuing effort, and in reaction to the slowdown in sales volume throughout the company, Tower is closing its Sebewaing, Mich., facility in March and laying off 500 workers.
The Sebewaing facility’s stamping and assembly operations will be consolidated into other Tower Automotive plants in Michigan, Kentucky and Indiana, and the restructuring activity related to it will result in a fourth-quarter pre-tax charge of about $95 million.
“We are certainly looking and continue to look at absolutely every facility we have, making sure we can match our overhead with the volume scenario that next year is really anybody’s guess,” Campbell said. He added that the company is reviewing other possible restructurings in the fourth quarter.
Campbell said earnings are secondary, and have been all year along, to the liquidity and management of the company’s cash flow.
He pointed out that in the third quarter the company has continued to reduce debt through management of working capital, the completion of a $40 million private equity placement of its common stock, and the $126 million operating lease financing for the Dodge Ram frame assembly.
Debt reduction in the third quarter and nine months of this year was $106 million and $270 million, respectively.
Tower’s base plan will be what it hopes is “a worst-case situation” of 14 million units. Campbell said the hope is it will be closer to 15 million, but the company “would rather move up than down.”
There’s also the continuing squeeze of auto manufacturers demanding cost reductions.
“All in all, this quarter coming up and next year is going to take some very tough duty on all of our parts because our customers continue to kind of look at us as an opportunity to subsidize some of their own shortcomings,” he added. “It’s not going to be easy but we will get through this and we’ll come out of this a stronger company.”