The fourth quarter of 2000 was not kind to supercompounder PolyOne Corp., and the first quarter of 2001 does not look to offer much relief.
Yet, in spite of this bleak outlook, officials at the Cleveland-based firm said they are undertaking changes that could result in $2 per-share profit in 2003.
That's a far cry from fourth quarter 2000, when PolyOne lost 15 cents a share, or a total of more than $13 million. In a Feb. 1 conference call, Chief Financial Officer David Wilson said similar results could be on the way for the first quarter of 2001, with customer demand dropping considerably as raw material and energy costs remain high.
"Demand has started off worse than we expected, particularly in automotive," Wilson said.
PolyOne took a step in this direction Jan. 29 by announcing it was closing four plants in a move that will add $6 million to its bottom line.
The firm also released pro forma earnings for 2000, which were restated as if M.A. Hanna Co. and Geon Co. had merged on Jan. 1 instead of its actual Sept. 1 start date.
By that measurement, PolyOne posted sales of $3.14 billion in 2000, a jump of more than 3 percent from 1999. Profit was another matter, dropping 34 percent to $52.4 million.
Officials still expect savings from the merger. When the deal was first announced, the companies figured the combination would save about $50 million annually. Now they say it could be as much as $100 million, with purchasing of nonmanufacturing supplies alone contributing as much as $20 million.
PolyOne also is seeing some proof that it can achieve cross-selling between Geon's PVC-based compounds and Hanna's engineered and color products. A large buyer of Geon's compounds for wire and cable recently switched his purchases of non-PVC material over to PolyOne, according to spokesman Dennis Cocco.
Several industry analysts, including Tim Gerdeman of Lehman Bros. in Chicago, have pointed to PolyOne's 24 percent stake in PVC maker Oxy Vinyls LP of Dallas as a negative influence on PolyOne's recent earnings woes.
In a Feb. 1 note to investors, Gerdeman described PolyOne's Oxy Vinyls stake as "the primary driver fueling [PolyOne's] operating loss."
Although its Oxy Vinyls ownership cost PolyOne $12.5 million in the fourth quarter — primarily from lower PVC volumes and prices, as well as high natural gas costs that affect PVC production — Cocco said PolyOne has no plans to sell its OxyVinyls share.
"The effect of OxyVinyls has been highlighted because of what's been going on with natural gas prices but being backward-integrated [in PVC] gives us economic advantages," Cocco said.
Gerdeman praised PolyOne's management team for "moving quickly to stem financial hemorrhaging."