Decreased profit has taken its toll at Cleveland's M.A. Hanna Co., as the compounding, colorant and distribution giant plans to eliminate 260 jobs — about 4 percent of its total work force — by mid-1999.
Hanna will close five of its 17 colorant plants, reduce staff at its shapes distribution business and make other job reductions at both the administrative and labor levels throughout the company.
The plants that will be closed are in Milford, N.H.; Eagan, Minn.; Carolina, Puerto Rico; North Kansas City, Mo.; and Vancouver, Wash. Production from those facilities will be transferred to other Hanna plants.
The closings will eliminate 100 jobs, while the shapes distribution move will account for 35-40. The remaining cuts will come from companywide administrative and labor reductions.
A Hanna spokeswoman said the company decided to close the plants after reviewing their profit-and-loss statements.
Hanna expects the cuts to save at least $12 million in 1999 and at least $16 million annually beginning in 2000. The company will take a pre-tax special charge of $29.8 million against third-quarter profit.
Although Hanna set a sales record of $2.2 billion last year, its fortunes have tumbled in 1998. Stock was selling for about $14 per share Aug. 6, after being in the $20 range in early June. The firm said July 1 that it expected decreased second-quarter profit. At that time, Hanna officials cited several reasons, including:
Softness in automotive, wire and cable and building products markets for its domestic colorants business.
Lower sales in business machines and electronic and electrical markets for its domestic compounding business.
Incremental expenses from integrating a new companywide information system.
Market demands for more highly concentrated colorants resulting in reduced volumes.
Loss of business because of the General Motors Corp. strike.
Hanna also announced it would replace the regional structure of its North American color business with a more market-focused organization.
``As we looked at the total dynamics of our business, we determined that the basic business plan is sound, but we need to make changes to gain more leverage from our market position and facilities,'' Chairman and Chief Executive Officer Douglas McGregor said in a news release.
Market analysts said the Hanna moves were positive, but added that the company still had quite a bit of ground to make up.
``All companies in the specialty chemicals industry are looking to trim their operations in the face of price and volume reduction,'' said Arthur Stupay, an analyst with SBK-Brooks in Cleveland. ``[Hanna's] move isn't enormous, but it's very positive.''
Stupay added Hanna has been severely affected by the Asian economic crisis. He estimated about 10 percent of Hanna's overall sales are in China and the Asia- Pacific region.
Karen Gilsenan, an analyst with Merrill Lynch in New York, said the move could help Hanna stabilize margins in its color business.
Hanna's rapid acquisition pace — it has purchased 24 businesses in 12 years — may be playing a part in its recent woes. In a Feb. 25 report, New York investment firm PaineWebber said it was concerned that Hanna ``may have acquisition digestion problems.''
``They're going through the process of trying to change Hanna ... to a one-company format,'' Gilsenan said. ``There are a lot of costs associated with that ... and those internal changes have an impact on earnings.''
A Hanna spokeswoman said attributing the company's 1998 performance to consolidation problems would be inaccurate.
Hanna was the subject of acquisition rumors earlier in the year when Barron's reported that AlliedSignal Inc. of Morristown, N.J., was interested. An AlliedSignal executive recently denied that claim, but some analysts said Hanna still may be a target or may be looking to form a partnership with another company. Hanna declined to comment on the topic.
The Hanna closings and profit difficulties shouldn't be seen as a sign of trouble in the North American colorants market, according to Bob Fielding, senior vice president of Masterbatches-Americas for Clariant Masterbatches of Easton, Md., one of Hanna's biggest competitors.
``We're still relatively optimistic in terms of growth in the masterbatch industry,'' Fielding said in an Aug. 6 phone interview. ``We look to exceed the 3-4 percent growth the industry expects this year.''
Initial market reaction to the move was lukewarm, as Hanna's stock rose slightly to $14.1875 per share as of 10 a.m. Aug. 7.
Hanna also made a pair of personnel moves to help put the restructuring in place. Garth Henry, the company's senior vice president of international operations, was promoted to executive vice president of worldwide plastics. Michael Duffy also was promoted from vice president and chief financial officer to senior vice president of finance and administration.
Hanna is the third-largest U.S. compounder with a 5-6 percent share of an $8.7 billion market, according to a recent study by Frost & Sullivan of Mountain View, Calif. That same study ranked Hanna as the largest American color compound and concentrate maker with 11 percent of that market.