With additional steel costs of $22 million after taxes, Toledo's Dana Corp. yesterday announced a 34 percent plunge in its third-quarter earnings, joining a growing list of companies whose profits are being trampled by commodity prices.
The maker of axles, driveshafts, pickup frames, and other parts said it expects steel prices will continue to affect the bottom line but expects more costs will be offset next year by consolidating global purchasing, deploying lean manufacturing techniques, and other ongoing cost-cutting moves.
Dana had a profit of $40 million last quarter, or 27 cents a share, on sales of $2.1 billion, a 12 percent increase from last year's third-quarter.
"We're not content to play the victim," Mike Burns, Dana's chairman and chief executive, told analysts and shareholders during a conference call yesterday. "We have a business to run, and we will do that regardless of external factors."
Same goes for Whirlpool Corp. of Benton Harbor, Mich., which has a dishwasher factory in Findlay and a washing machine plant in Clyde. Higher costs for steel and other commodities caused Whirlpool's third-quarter earnings to drop 4 percent to $101 million. The appliance company said it will raise prices next year by 5 percent to 10 percent.
Steel prices in the last year have at least doubled - and gone up 150 percent for some products - especially hurting the profitability of small auto parts makers supplying the likes of Dana, said steel expert John Anton, principal economist with Global Insight Inc., an economic analysis firm.
Unlike Whirlpool, both small and large auto suppliers have been unable to pass steel price increases onto automakers, which are trying to keep prices down and sales up, he said. While steel prices have hurt the profitability of manufacturers in the auto and appliance industries, those making heavy equipment and machine tools already have overcome such costs by exporting their products, he said.
The stock prices of Dana and other parts suppliers have stumbled since steel costs became an issue, although Johnson Controls and others who have secured the most new business have been able to offset increased prices and help their stock prices, said David Siino, an auto industry analyst with Gabelli & Co. Inc. of Rye, N.Y.
Steel isn't the only raw material that has hurt local companies.
Commodity prices for northwest Ohio manufacturers have been on the rise since August, 2003, according to a local index of manufacturing activity. The last time the index compiled by Toledo's Regional Growth Partnership recorded a decline in commodity prices was nearly three years ago.
Findlay's Cooper Tire & Rubber Co., which reports its third-quarter earnings today, has said prices for natural rubber, steel, petroleum-based products, and other commodities have risen. It has increased tire prices and made other moves to offset the higher costs.
Still, stock markets haven't been hit much overall because shares of steel and oil companies generally are on the rise, said Mr. Anton of Global Insight. "It's a two-edged sword," he said.
Also yesterday, Dana officials for the second time said the expected sale of most of the company's replacement parts business has been delayed, this time until the end of next month. Dana originally had expected that the $1.1 billion sale to the Cypress Group would be completed by the end of September.
Contact Julie M. McKinnon at:
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