Plummeting stock rocks 4 Toledo area firms

Chad Holmes works on a drive shaft at Dana Holding Corp. s parts plant in Lima, Ohio, last year. The firm has not met revenue or profit projections since emerging from bankruptcy last year.

Kelli Cardinal / AP

A stylish blue-stemmed martini glass from Libbey Inc.'s Metropolis line was selling for $3.99 on the company's Web site last week.

On Wall Street, the same amount of cash would have purchased four shares of the Toledo company's badly shattered stock.

The destructive economic virus that first swept through banks and investment houses last fall quickly spread to some hallmark U.S. manufacturers such as Libbey, sending investors scrambling for the exits and stock values to lows normally associated with companies headed for bankruptcy court.

Locally, the list of affected firms includes furniture maker La-Z-Boy Inc. of Monroe, axle manufacturer Dana Holding Corp. of Toledo, and Cooper Tire & Rubber Co. of Findlay. Cooper Tire shares sunk to $3.44 at the close of trading Friday on the New York Stock Exchange. Shares of the other companies were trading for less than $1 each.

And now the firms are battening down the hatches.

"We are in territory we haven't seen since the Great Depression," said Jim Gillette, an auto analyst with CSM Worldwide in Northville, Mich. "A year ago, we were talking about a completely different world. Some people said it would be tough. But you would be hard-pressed to find anyone who thought it would get this bad."

Most U.S. stocks have fallen. But shares of these four regional firms have stumbled especially hard in developments attributed to lost revenues, heavy debt loads, and involvement in sectors of the economy out of favor with managers of mutual funds that dominate the stock market.

Chad Holmes works on a drive shaft at Dana Holding Corp. s parts plant in Lima, Ohio, last year. The firm has not met revenue or profit projections since emerging from bankruptcy last year.

When shares of a firm fall below $1 each, investors have historically assumed it is "at high risk of bankruptcy," said Gene Collins, a longtime executive at Citigroup, who ran the firm's trading desk for 18 years. Mr. Collins is executive-in-residence at the University of Toledo business college.

The numbers tell the story.

The Dow Jones Industrial Average, a barometer of the stock performance of large, leading U.S. companies, has fallen 42 percent since the collapse of Lehman Brothers set events in motion in September.

Shares of three of the four regional companies plummeted. Since Sept. 12, Dana declined 97 percent to 23 cents. Libbey dropped 90 percent to 96 cents. La-Z-Boy cratered 94 percent to 60 cents.

James Brown, Jr., does an inspection at Cooper Tire, a firm Standard & Poor s analysts say is highly leveraged with debt of $855 million. Company spokesmen say it is not in danger of bankruptcy.

Cooper Tire did slightly better, with a 68 percent decline to $3.44.

In a further sign of how skittish investors are about the local firms, long-term bonds of Libbey traded last week at 41 cents on the dollar; Cooper Tire, at 45 cents on the dollar.

Credit ratings assigned by Standard & Poor's to the two firms, along with Dana, are below investment-grade in a category known as "junk." S&P doesn't rate La-Z-Boy.

Dana appears most vulnerable.

The auto parts producer, which supplies truck axles and other parts to the struggling Detroit Three and other manufacturers, has long-term debt of $1.3 billion. Since emerging from bankruptcy on Feb. 1, 2008, it has failed to meet projections for revenues and profits.

The company last month delayed release of its earnings report for the fourth quarter and full-year 2008 until March 16. But from the day it exited bankruptcy to Sept. 30, Dana lost $435 million on sales of $5.8 billion. That compared to a loss of $294 million on sales of $6.6 billion in the first nine months of 2007. Late last year, the firm was forced to seek a relaxation of loan terms. However, terms are slated to tighten in the second half of 2009, according to Standard & Poor's.

In cost-cutting moves, Dana last year announced 5,000 job cuts and the closing of up to 10 plants over the next two years. The company employs 29,000 people worldwide, including 1,000 in metro Toledo.

When Dana emerged from Chapter 11 reorganization more than a year ago, newly issued shares opened at $12.70 on the New York Stock Exchange. By Friday, they were trading at 2 percent of that. The combined value of Dana shares was just $23 million as of Friday, according to figures from Yahoo Finance. In response to a threat by NYSE last month to delist the shares because of their low trading price, the firm has asked stockholders to approve an exchange to get one share for every 10, 15, or 20 shares they own, a move known as a reverse stock split.

A Dana spokesman refused to discuss the possibility the firm might be forced back into Chapter 11. "We're not going to respond to speculation," Chuck Hartlage said.

Mr. Gillette of CSM Worldwide said the Toledo company wouldn't be the first company to re-enter bankruptcy. But he said Dana is not among struggling automotive suppliers believed to be delaying a Chapter 11 filing in the hopes the federal government will offer loans to get them through the process.

"I'm not predicting it in the short term," he said of a Dana filing. "I'm not saying it won't happen. I'm saying it could happen," given the firm's extensive debts.

While many companies emerge from Chapter 11 bankruptcy, shareholders are typically wiped out, said Mr. Collins, the UT executive-in-residence. The most troubled firms, however, go straight to Chapter 7, meaning they suspend operations and sell equipment and buildings.

When a firm with subpar stock is able to avoid a trip to bankruptcy court, it can pay off big for investors who took a chance on it.

But before putting money into such companies, Mr. Collins advises investors to carefully study debt levels, how inexpensively the firm is able to make products in comparison to its competitors, and whether it is the top-seller in its field.

Regional firms whose shares have been swept up in the economic tsunami are hardly unknown newcomers.

Dana, which ranked 283rd last year on the Fortune 500 list, celebrated its 100th anniversary in 2004.

Libbey, known in Toledo as Libbey Glass, was founded in the late 19th century and is America's best-known manufacturer of drinking glasses and other tableware.

Executives at the firm acknowledge that 2009 will be difficult but note that the company has $13 million in cash and $45 million in available credit. Still, cash reserves have fallen by nearly two-thirds and available credit by half since the beginning of last year.

Libbey is a major supplier to restaurants and other commercial kitchens and controls 41 percent of tableware retail sales in the United States, according to analysts at Jefferies & Company Inc.

But it owes $659 million to bondholders, its pension fund, and other creditors. And recent financial results have been weak.

Losses - most of them in the last three months of the year - totaled $81 million in 2008 on flat sales of $810 million. Executives responded by cutting pay for salaried employees by 5 percent, suspending a dividend of 9 cents a share annually, and closing a plant in Syracuse, N.Y., along with a warehouse in Mira Loma, Calif. Those and other cuts trimmed the 7,400-person work force - including 1,400 in Toledo - by 800 worldwide.

Prompt cost-cutting makes a bankruptcy filing extremely unlikely for the next several years, Arnie Ursaner, an analyst with CJS Securities Inc. in White Plains, N.Y., has concluded.

Still, given heavy debt, Libbey's share price could slip to 50 cents without improvement in the U.S. economy, analyst Douglas Lane of Jefferies & Company wrote in a note to investors Feb. 12.

NYSE has threatened to delist the firm because the combined value of its shares, $14 million, is below the required $15 million. Libbey executives say they will submit a plan to deal with the issue by early April.

La-Z-Boy, developer of the iconic La-Z-Boy recliner, has struggled with slumping sales since 2003.

Sales plunged 15 percent over the five-year period ended last April to just under $1.5 billion, partly as a result of asset sales. The combined value of the firm's share price - known as a firm's "market value" - is $31 million.

"This is anything but a typical market," spokesman Kathy Liebmann said. "Furniture is a discretionary purchase and, in this type of ... environment, the consumer is postponing such purchases."

But La-Z-Boy will overcome the problems through a combination of cost-cutting and debt reduction, she said. The firm owes about $90 million, down $60 million in a year.

The company has been profitable in only two of the last five years. Still, it managed a cumulative profit over the period of $19 million.

La-Z-Boy's problems escalated in the financial turmoil of 2008. At the big home furnishings show in High Point, N.C., a year ago, Chief Executive Kurt Darrow acknowledged sales were still sliding but boasted that cost-cutting would help the company turn a profit.

But when the firm's year-end financial report was released in June, the picture wasn't pretty.

La-Z-Boy lost $13.5 million on an 11 percent drop in sales compared to a profit of $4.1 million in 2007. And the bad news has continued. In the three-month period ending Jan. 24, La-Z-Boy lost $64 million on a 23 percent drop in sales.

Executives responded by axing the quarterly stock dividend after previously cutting it to 4 cents from 12 cents; cutting 1,900 jobs; closing a plant in Tremonton, Utah; consolidating cutting and sewing at a new plant in Mexico, and closing 15 retail stores.

Stocks of most major furniture makers are trading below $1 a share, said Wallace "Jerry" Epperson, research director at investment bank Mann Armistead, Epperson Ltd. in Richmond, Va.

Furniture sales have plunged 25 percent since last year. Part of the problem, he said, is that most furniture purchases are on credit at a time when credit markets have tightened. La-Z-Boy employs 7,600 people, including 400 at corporate offices in Monroe.

Curtis Schneekloth, spokesman for Cooper Tire, said the firm will be able to overcome the economic crisis. With nearly $250 million in cash reserves, plus available credit, the company has access to $500 million.

It lost $219 million, or $3.72 a share, last year compared to a profit of $119 million, or $1.48 a share, in 2007. Sales were $2.8 billion in 2008, down from $2.9 billion in the prior year. The firm employs 13,000 people worldwide, including 1,100 at a factory in Findlay and several hundred at corporate headquarters there.

With Cooper Tire's debt of $855 million, credit analysts at Standard & Poor's describe the firm as "highly leveraged."

Still, the Findlay company is in no danger of filing for bankruptcy, Mr. Schneekloth said.

"We will be able to survive ... this," he said, citing moves such as reduced spending on plants and equipment, a pay freeze for salaried employees, and suspension of a stock buyback program.

Himanshu Patel, an analyst with JP Morgan, expressed similar sentiments in a note to investors on March 2 after Cooper announced quarterly and year-end earnings. "We reiterate our view that [Cooper Tire] has sufficient balance sheet strength to see it through an eventual tire market recovery," he wrote.

Some financial experts argue that, in the current market turbulence, sub-$1 shares carry less stigma than they once did. NYSE this year temporarily eased a rule barring stocks trading for less than $1 a share.

"We've been suffering through a great shock," said Clare Zempel, an economic and financial consultant in Fox Point, Wis. "It's had such a broad effect that people don't want to invest. ... But this may not persist. So having a low stock price doesn't necessarily mean the same today as before."

Contact Gary Pakulski at:

gpakulski@theblade.com

or 419-724-6082.