Collins & Aikman Corp. is cutting employment and costs, changing management and considering closing some of the 12 plants blamed for a significant chunk of the firm's net quarterly loss of $28.7 million.
``C&A's management team is extremely disappointed and embarrassed and will defer any other initiatives until these [operations] are fixed,'' President and Chief Executive Officer Jerry Mosingo said during a May 15 conference call with analysts.
The company, in the midst of an overhaul to improve overall performance and return to profitability after a two-year buying binge, had good results at the bulk of its facilities, Mosingo said, but the troubled plants are dragging down the firm.
``We got hit hard by the bottom 10 percent tail of our manufacturing,'' he said. ``We have outlined the job ahead and we will improve.''
Collins & Aikman posted a $28.7 million net loss for the first quarter of 2003 on sales of $1.03 billion, compared with a $6.7 million net loss on sales of $914 million a year earlier.
The troubled plants account for 11 percent of the Troy, Mich.-based company's sales. Together they were responsible for $17.9 million in losses as counted by operating income plus depreciation and amortization. All but three of the plants are plastics operations, pre-dating the management overhaul that sent Mosingo to the top office last year, but ones that have not responded as quickly or as well to new initiatives.
Two of the plants, in O'Fallon, Mo., and Marshall, Mich., recently closed as part of a previously announced restructuring. Another three operations - in the Czech Republic, Sweden and Brazil - have been warned that they will be closed if they don't improve.
Two of the ``plants'' listed are actually multisite operations run jointly - with four facilities in England making up UK Plastics and three in Brazil referred to as the ``Brazilian operations.''
``Job One is to lay out the unvarnished facts about the significant decline in [first-quarter] income,'' Mosingo said. ``Our management team takes full responsibility.''
The biggest loss leader, an injection molding operation in Nashville, Tenn., racked up $4.4 million in losses for the first quarter. Many of the problems were linked to a change in the type of resin, originally altered to save a customer money, but which led to extensive problems with scrap and premium freight costs.
In addition, the Nashville plant saw part damage from defective shipping containers and racked up costs from excessive staffing and overtime, Mosingo said.
The company already has brought in new management from its award-winning manufacturing group at Athens, Tenn., and called on it to cut losses by 75 percent in the second quarter and achieve profitability ``shortly thereafter.'' Actions will include a reduction in head count and overtime hours.
C&A's plant in Hodonín, the Czech Republic, is responsible for much of the interior components in the new Porsche Cayenne sport utility vehicle, but Mosingo said most aspects of the program development, pricing and other issues related to starting that program were badly managed.
The company was losing more than $300 per vehicle, he said. An emergency recovery effort is under way, but if it is unsuccessful, the plant will be abandoned.
Also at risk for closure: The Brazilian operations - hurt not only by a slowdown in production, but also devalued currency and increasing resin prices - and a small sequencing plant in Save, Sweden.
The injection molding factory in Scarborough, Ontario, took on more business as Collins & Aikman restructured, with work transferred there from other plants that closed. At the same time, it had a vital launch for components in General Motors Corp.'s Pontiac Grand Prix.
The facility simply was overwhelmed, Mosingo said. The ``full-court press'' to cut losses in half by the second quarter and achieve profitability by the fourth quarter includes moving over lean-manufacturing gurus to management positions, bringing in new equipment to upgrade operations and shifting some production to other sites.
Other operations on the troubled facility list:
* The four small plants of UK Plastics in Redditch, Stourport, West Midland and Sunderland, England, are suffering from what Mosingo called a mishandled transition during integration. They racked up overtime and outside supplier costs while also giving up price cuts given in exchange for future business. Redditch must cut employment levels by 37 percent, or 125 jobs, in addition to other cost-cutting measures through the holdings.
* Havre de Grace, Md., is tied heavily to one product, the DaimlerChrysler AG's Dodge Durango. A three-month delay in the launch of an updated Durango has left it with extensive ramp-up costs and little actual production or sales. Mosingo anticipates things will improve once volume picks up.
* At Manchester, Mich., a 15-point ``Do It Now'' initiative is aimed at improving quality and performance to meet increasing demands by top customer GM for its Cadillac Deville. The company will reduce direct-labor head count by 50 people and indirect labor by 15 percent as it implements lean manufacturing.
* Farmington, N.H., has seen volumes drop steadily, but has not been aggressive enough in cutting employment levels to match. It will cut 115 jobs by the end of the second quarter to bring it into compliance with demands.
* Collins & Aikman acquired textile processor Southwest Laminates in El Paso, Texas, in April 2002 and still is bringing investments into line with production. Mosingo said the firm expects incremental improvements in volume with better financial numbers by the third fiscal quarter.
Integrated reporting strategies on operations set in place throughout C&A should keep the company from being surprised by poorly performing factories in the future, he said, giving the firm more opportunities to respond.
Analysts, though, were skeptical about what the coming months may bring, especially since they received little warning that the numbers would drop so far. Collins & Aikman's stock, already suffering from low values, dropped more than 15 percent in the hours after it announced quarterly performance. Shares closed May 15 at $3.20, down from a closing of $3.80 a day earlier.
``People are just tired of the roller coaster,'' Deutsche Bank analyst David Bitterman warned C&A executives during the conference call. ``You've got to fix the business first, but you've got to communicate a clearer message.''