Recognizing that its $384 million in debt has become a sticking point for investors, table-glassware maker Libbey Inc. said it has decided to suspend its nearly 12 cent quarterly dividend in order to pay down its financial obligations faster.
The Toledo company, which made the announcement late Monday, spends about $10 million annually on dividends. Paying down its debt faster also will allow the company to focus more on its strategic initiatives.
“The Board has been studying this issue for some time and based on their analysis, and numerous conversations with current and prospective investors, have taken this action,” Bill Foley, chairman and CEO of Libbey, said in a statement announcing the decision to strengthen the company’s balance sheet.
"We are encouraged by the momentum that the company has demonstrated in the past two quarters as we continue to make progress on key initiatives to improve our performance, and we remain committed to our 2018 guidance,” Mr. Foley said.
Investors, however, were not so keen on the decision. Libbey’s stock had traded at $7.11 a share before the announcement, but by the close of trading Tuesday on the New York Stock Exchange, its share price had dropped 80 cents.
Libbey last opted to suspend its dividend in January, 2009. The payout was just 2.5 cents per share, or 10 cents per share annually.
The glassware-maker went six years without a dividend before restoring it in January, 2015, as part of a new “Own the Moment” financial strategy implemented by then-CEO Stephanie Streeter.
The restored dividend was 11 cents per share, but the company has been increasing it slowly. It was at 11.75 cents per share, or 47 cents a share annually.
The move will leave Libbey and Owens-Illinois Inc. as the only two publicly traded companies in northwest Ohio and southeast Michigan without a dividend. The company also is coming off a year in which it had to absorb the impact of a one-time revaluation of its Latin America operations and face changes to U.S. tax law that affected the company negatively.
Libbey had a net loss of $93.4 million last year, compared to a profit of $10.1 million in 2016. In the first quarter of 2018, it lost $3 million, compared with a loss of $6.6 million in 2017’s first quarter.
But Sidoti & Co. analyst Christopher McGinnis said he sees suspending the dividend as a positive move for Libbey that allows it to strengthen its balance sheet quicker while its operations improve.
On Tuesday he put out a note to clients that listed Libbey at a “Buy” rating with an estimate that by year’s end its share price will reach $15.
“In our view, this is a clear positive for [Libbey] and its shareholders, and indicates to us that [Libbey] is committed to strengthening the balance sheet, an issue that has been at the forefront of investor concern over the last year,” Mr. McGinnis wrote.
The analyst said he expects Libbey to reduce its debt-to-equity ratio and improve its earnings this year and next.
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