Crown, Cork and Seal reverses slide

Related tags Crown United states dollar Currency Crown cork

Having been on the verge of bankruptcy just eight months ago, Crown
Cork and Seal are now well on the road to recovery, after an
intensive period of cost cutting and selling off a number of its
less profitable divisions.

Having been on the verge of bankruptcy just eight months ago, Crown Cork and Seal are now well on the road to recovery.

At the end of the third quarter last year, Crown Cork's debt totalled $5.3 billion (€5.4bn). Then, in December, its shares went as low as 83 cents. Some analysts thought it might file for Chapter 11 bankruptcy.

Now, eight months later, the company is on the mend.

Crown Cork's shares have almost doubled in value this year and by the end of March , the company had managed to whittle its debt down to $5.1 billion.

And it has slashed quarterly losses from $918 million during the fourth quarter to $54 million during the first quarter, largely through selling non-core businesses and by making the unusual move of boosting prices.

So far, the plan seems to be working. Earlier this month, Crown Cork reported second-quarter profits of $64 million. Still, some worry about its stock's continued volatility and wonder if more divestitures might be on the horizon.

"Things are getting better,"​ said Daniel Khoshaba, an analyst who follows the company as managing director with Deutsche Bank in New York. "They're not totally out of the woods yet, but clearly, their run of bad luck - let's cross our fingers - has ended."

Worldwide, the company employs roughly 33,000 people making steel and aluminum cans for the food and beverage industries, as well as metal and plastic packaging products for health and beauty products, plus metal and plastic caps, closures and dispensing systems.

In addition to a heavy debt load, Crown Cork has struggled with mounting legal problems associated with its 1963 investment in a Pennsylvania company and three months ownership of that company's insulation division that handled asbestos.

It has also had to contend with weak pricing, excessive industry capacity and the 2000 bankruptcy of a large food-can customer. In addition, analysts say, the company had trouble assimilating its $5.2 billion acquisition of French rival Carnaud Metalbox in 1996. As a result, it ended 2001 with $7.2 billion in sales, but a net loss of almost $1 billion.

Among the more significant steps the company took was a round of price increases earlier this year on products in North America and Europe. Those increases - estimated by analysts to have been about 8 percent - have largely stuck.

"It's a margin-improvement program,"​ said Timothy Donahue, Crown's senior vice president of finance. "It's trying to recover the margin not only Crown, but the entire industry, has given away in the last several years."

"It's a move that immediately helps the bottom line"​, said Gary Schneider, an analyst at Bear, Stearns & Co.

"There's no increase in costs," Schneider continued. "That should flow right through to profitability."

Crown has also sold off non-core businesses, raising more than $210 million to pay down debt.

"That's been our primary focus for at least the last 12 to 15 to 18 months,"​ Donahue said.

The company received good news on the asbestos-liability front this spring when a Pennsylvania judge threw out 376 cases that were pending against it. However, as of March 31, Crown said it still faces $317 million in claims estimated to number about 66,000.

"It doesn't mean that they're asbestos problem is going away,"​ Khoshaba said.

Other outside forces have also helped the company, Khoshaba said, including the dollar's weakening against the Euro and British Pound Sterling. That's because about 45 per cent of its sales are in Europe, and a strong dollar deflates the value of sales counted in foreign currencies.

"The strong US dollar since 1996 has trimmed $1.1 billion of sales from Crown,"​ Khoshaba said. "A weak dollar is very good for this company."

In an effort to get back on its financial feet, Crown sold its 15-per cent stake in a South African company earlier this year for $24 million, and agreed to sell another $25 million in African assets.

In May, it completed the sale of a Danish subsidiary that that makes and sells metal closures to brewery and soft drink businesses in Scandinavia. And in March, the company agreed to sell its pharmaceutical packaging business.

Also, Constar, one of its subsidiaries, has also moved ahead with plans for an initial public offering, or IPO, that's expected to raise more than $140 million from the sale of shares and another $200 million from notes. Once the IPO is completed, Crown still would own 45 per cent of Constar, which makes plastic bottles for customers like the Anheuser-Busch Companies, PepsiCo and Procter & Gamble.

Crown said it will use the proceeds to pay down debts.

"There could be the possibility there could be other sales to come,"​ Donahue said.

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