Shares of Owens-Illinois, Inc., dropped below $3 yesterday to what is believed to be an all-time low for its 97-year history and certainly to its lowest level since the glass-container manufacturer re-emerged as a public company in 1991.
Stock of O-I, which began the year at $25.06 a share, closed yesterday at $2.56, down 44 cents, on volume of 1.5 million shares, in New York Stock Exchange trading - a drop of nearly 15 per cent. On Tuesday, O-I's common stock fell 81 cents a share, or 21 per cent, to $3, on volume of 1.3 million shares, making O-I the second biggest loser on NYSE for the day.
O-I, Toledo's second largest company, has been beleaguered in recent weeks by disappointing earnings, plunging prices of its bonds and common and preferred stock, and by worries about the company's potential asbestos liability - particularly since another of Toledo's Fortune 500 firms, Owens Corning, filed a Chapter 11 bankruptcy early last month to get out from under $5 billion of asbestos claims.
“Oh, my goodness, we just don't need any more pain in this community,” said Peter Kaldis, resident vice president for Merrill Lynch in Toledo.
Andrew O'Conor, a vice president with Merrill Lynch in New York, recently moved O-I to a high-risk category and downgraded its shares from “long-term buy” to “accumulate.” Yesterday, he said, “We continue to rate their shares neutral,” largely because of earnings concerns, and he added that he expects continued volatility in trading volume.
J.P. Morgan on Tuesday downgraded O-I stock from “long-term buy” to market perform.” Other recent rating changes include an upgrade by Bear, Stearns from “neutral” to “attractive” and a downgrade by Merrill Lynch from “long-term buy” to “long-term accumulate” last month.
Owens Corning's stock, which had been as high as $43.75 a share last year and as high as $21.56 this year, has been trading between $1 and $2 per share since its Chapter 11 filing Oct. 5. It closed yesterday at $1.06 a share, unchanged, in NYSE trading.
O-I spokesman John Hoff reiterated the company's stance that bankruptcy is not being considered. Wall Street has lumped O-I with other companies facing asbestos liabilities even though it stopped making such products in 1958, has fewer pending cases, has sufficient cash flow, makes settlement payments in installments, and expects a good 2001, he said.
“It's frustrating because investors generally have not yet begun to differentiate between companies that have pretty large asbestos liabilities and those like O-I whose [liabilities] are relatively small,” Mr. Hoff said.
“We're doing all we can. We're talking to investors every day,” he added. “There's a certain component to the stock market that's emotional, and you have to ride that out as well.”
Someday investors will realize O-I's situation is different, Mr. Hoff said. “When that happens, our stock price will begin to respond.”
That day of realization may never come, one analyst said. While O-I is not among the companies in immediate danger for filing bankruptcy and fundamentally is fine, Wall Street will continue seeing it as another of the more than 100 firms with asbestos liabilities, said Gary Schneider, an analyst with Bear, Stearns in New York.
“The typical investor is not smart enough to differentiate among all the companies that face asbestos liability litigation,” he said.
The liability issue came to the forefront again earlier this month when another former asbestos manufacturer, Armstrong Holdings, Inc., said it might seek bankruptcy protection.
O-I's earnings are expected to be $1.50 to $1.55 a share this year and 10 per cent higher in 2001, Mr. Schneider said. Even with asbestos liabilities, O-I should have about $50 million in cash flow this year and has no reason to file for bankruptcy protection, he said.
Benjamin Padilla, vice president-investments for the Toledo office of Salomon Smith Barney, noted that O-I has “an excellent operations history” and good earnings in the past, “but it's also saddled with quite a bit of debt in a slowed-down economy.” Mr. Padilla said stock and bonds of many companies, including O-I, are being punished by investors.
“The market is looking for solid, solid earnings” and has a “give me earnings, now” mentality,” Mr. Padilla remarked.
Asbestos liabilities combined with other factors - being in an industry that is out of favor, having high raw material costs, and facing weak demand for products - is hurting O-I stock, said Stewart Scharf, an analyst with S&P Equity Group in New York.
O-I's cash flow seems strong enough to ward off bankruptcy unless asbestos claims continue to rise, Mr. Scharf said. Still, he said, he is maintaining a “sell” rating on O-I stock despite its low price.
O-I, second only to Dana Corp. in Toledo, had revenue of $5.5 billion last year and earnings of $1.73 per share. However in the third quarter, its sales were flat at $1.5 billion, and it had a loss of $449 million, or $3.12 a share, partly because of higher estimates for asbestos liability. O-I announced that it will close two plants and trim about 900 jobs, including about 275 in Toledo, 21 per cent of its work force here. Much of O-I's long-term debt of $5.8 billion resulted from its leveraged buyout in the late 1980s and acquisitions of smaller glass-container makers.
O-I's preferred stock has suffered in recent weeks too. Those shares fell 50 cents yesterday to $6.25, compared to a 52-week high of $32.25.
Exact price comparisons of O-I's stock over its history are difficult because the firm has undergone numerous mergers and changes in capitalization, and it has split several times. In addition, O-I went private from early 1987 to late 1991 - after a takeover by New York's Kohlberg Kravis Roberts & Co., which paid $3.66 billion for the Toledo-based company, or $60.50 per share.
In 1913, O-I's predecessor, Owens Bottle Machine Co., was going for $445 a share, according to Commerce Clearing House's Capital Changes Reports. In 1936, in the midst of the Great Depression, stock of O-I (then known as Owens-Illinois Glass Co.) was selling for about $144, according to another entry in the reports.
During the 1929 crash, from Oct. 24-29, when the Dow Jones industrial average fell 25 per cent, O-I's stock fell just 12 per cent, from $68 to $60 a share, Blade files show. And in late 1932, by which time the Dow had fallen 89 per cent from its precrash highs, O-I stock was still hanging in at about $33 a share.
From 1959 until the KKR takeover in 1987, O-I was among the 30 companies in the prestigious Dow average.
Since it went public again nine years ago, its shares ranged from $7.88 at one point in 1992 to as high as $49 in 1998. Its 1999 trading range was $19.31 to $33.44.