THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Friday, July 26, 1996 TAG: 9607260419
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER
LENGTH: 68 lines
Newport News Shipbuilding may have gotten a taste of its future in the second quarter.
The shipbuilder's parent company, Tenneco Inc., reported Thursday that the Peninsula yard had lower income despite increasing revenues.
Tenneco attributed the earnings decline in part to lower margins on conversion and commercial work.
The shipyard, which is expected to be spun off to Tenneco shareholders as a separate company later this year, is trying to supplement a decline in Navy shipbuilding by re-entering the international commercial shipbuilding market.
For the quarter ended June 30, the shipyard's operating income was $40 million, down from $46 million a year earlier. Its revenues rose 12.5 percent to $477 million.
It was the shipyard's seventh consecutive quarter of earnings decline compared to the year-ago quarter.
``We see basically a good opportunity to break that string in the third quarter,'' said Dana G. Mead, Tenneco's chairman and chief executive.
A mix of lower costs and higher revenues from carrier work and the building of its first two commercial double-hulled tankers should lift earnings, he said.
However, the shipyard took a $20 million charge against its earnings in 1995's third quarter to pay for its re-entry into the commercial market and for employee downsizing last year. It only made $35 million in that period.
Parent company Tenneco made $159 million in the second quarter, down from $182 million a year earlier. The decline was attributed to the sale of its stake in tractor maker Case Corp. On a per-share basis, earnings were 93 cents compared with $1.05.
Tenneco's revenues soared to $2.8 billion from $2.2 billion thanks to acquisitions in its packaging and automotive businesses.
Tenneco's planned spinoff of the shipyard is still on schedule, Mead said. ``We've filed the request for a tax-free ruling with the IRS,'' he said.
The spinoff still must be approved by shareholders. A vote will likely occur in November, Mead said. Initial documents about the vote and spinoff could be filed with the Securities and Exchange Commission by late August.
With a favorable ruling from the IRS and shareholder approval, the spinoff could occur in late November or early December, Mead said.
Newport News Shipbuilding should be ``a valuable equity,'' Mead said. ``It will be popular because the shipyard will be on the upswing starting in the third quarter.''
Meanwhile, Tenneco is also developing a capital structure for the yard and helping it develop the skills it needs to be ``a very successful stand-alone company,'' Mead said.
The yard has begun seeking experienced executives to fill requirements that have been met by its parent in the past. The company just hired David J. Anderson as senior vice president and chief financial officer. Anderson had been chief financial officer and an executive vice president at R.J. Reynolds Tobacco Co. in Winston-Salem, N.C.
Newport News Shipbuilding faces stiff competition and tight profit margins as it tries to establish itself as an independent company and international competitor.
The shipyard's modernization program should help mitigate the lower margins of commercial work, according to Tenneco. All seven lines of the new automated steel-fabrication facility should be working by September 1997. That should help improve the yard's efficiency and trim manpower costs, leading to wider profit margins.
The yard's backlog at the end of June was $4.1 billion. Additions in the second quarter included a $119 million planning contract for the two-year, $1 billion refueling and overhaul of the carrier Nimitz, scheduled to start in May 1998.
KEYWORDS: TENNECO by CNB