Kaiser’S Second-Quarter Losses Lower Than Analysts Expected Report Is Best Since Strike, But Stock Price Dip Questioned

Generally beating analysts’ expectations, Kaiser Aluminum said Wednesday that it lost less last quarter than it has at any other time since its 10-month labor dispute began.

The company announced losses of $15.7 million in the second quarter of 1999.

In an hourlong conference call, Kaiser executives told a handful of investment analysts that the loss was due in part to lower prices for Kaiser’s products than a year ago, when income was $16.7 million for the same period.

The company also reported reduced sales in the quarter ending June 30 of $525 million, compared with $614.8 million in the same period a year earlier.

But officials added that operating income was up. Kaiser, for the first time in several quarters, reported that sales exceeded operating expenses by $700,000.

In the fourth quarter of 1998, Kaiser reported losses of $38.9 million. In the first quarter of 1999, losses totaled $38.2 million.

Analysts had several questions about the July 5 explosion at Kaiser’s Gramercy, La., plant and about the company’s ability to weather price fluctuations.

One analyst likened the company to “a ballplayer playing hurt.”

Kaiser’s second-quarter losses were offset by a $50.5 million gain on the sale of its share of an aluminum-wheel venture. That gain, however, was affected by a $38 million expense for asbestos-related legal claims.

Analysts didn’t ask about the lingering Steelworkers’ Union lockout that has idled 3,000 Kaiser workers across the country, including 2,100 in Spokane.

Kaiser CEO George Haymaker mentioned the recent decision by the National Labor Relations Board to drop unfair labor practice charges filed by the union.

“We hope that this will provide renewed motivation for the union for bargaining,” Haymaker said. The union has said it will appeal.

Kaiser President Ray Milchovich said that with the NLRB decision and the more positive than expected second quarter results, the outlook for negotiating with the Steelworkers is more positive.

“In terms of a 10-month labor dispute, there has been more positive news from the company and more reasons today for the parties to return to negotiations than there has been in some months,” he said.

Kaiser’s leaders also said the explosion in Gramercy, while unfortunate, may be a catalyst for major improvements at the plant. “Our desire and our intent is to rebuild the refinery,” Haymaker said.

The explosion, which injured 24 and left the plant inoperable, is under investigation by the Mine Health and Safety Administration. Three people are still hospitalized.

“We want to make sure we have all the facts and not jump to any conclusions (about the cause) before the investigation is completed,” Haymaker said.

But he said he is confident Kaiser will be able to rebuild the plant with insurance funds. The company hopes to reopen the plant next summer.

Analyst John Tumazos, of Sanford C. Berstein Co. in New York, wondered why Kaiser’s stock has fallen by a third in the last quarter, while market aluminum prices have gone up.

“It appears that investors are betting that all of a sudden labor negotiations took a bad turn and you’re capitulating or that people believe the insurance that applies to Gramercy” is in question, he told the Kaiser managers.

In an interview later, Tumazos said that Kaiser’s stock dipped Tuesday - down 69 cents a share to $7.19 - the day after the company announced it wanted to accelerate bargaining.

“If the contention of the company that a quarter of the workers are unnecessary is accurate, Kaiser is better off if they don’t settle,” he said. Kaiser, operating with a reduced staff of temporary workers, has claimed operations are more efficient.

The company leaders said they don’t know why share prices dropped.

“I’m a little bit baffled as well,” Haymaker said. “The stock showed reasonable strength right up to the time of the Gramercy explosion. It does seem as though this new piece of uncertainty has crept in here.”

He suggested that potential Kaiser stock buyers might be waiting to see what happens at the Gramercy plant.

Tumazos questioned Kaiser’s confidence in being able to rebuild Gramercy with insurance claims. “It’s the height of absurdity,” he said. “The inspections reports are not yet available. There’s a risk those reports are inconclusive.”

Kaiser will have to prove the company was not at fault in the accident to get its insurance payments, he said. “The mere fact you have replacement workers raises an element of doubt.”

Steelworker chief negotiator David Foster said he’s not surprised at Kaiser’s earnings loss. “It speaks volumes about the failure of Kaiser’s replacement worker strategy,” he said.

Haymaker said the final potline at Mead should be fully operational this fall. The company idled two lines when the Steelworkers went on strike Sept. 30. Both were scheduled for restart in March, but only one line was reopened this spring.

Kaiser’s stock closed Wednesday at $7.37, up 19 cents.