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Crompton Announces New $60 Million Restructuring Initiative
03-07-2001: Crompton Corporation (NYSE: CK) announced today a restructuring plan designed to streamline
work processes, organizational structure and manufacturing and non-manufacturing resources in
order to enhance financial performance.
This program is expected to yield $60 million in cost improvements by the end of 2002. As a result of continuing adverse economic factors including a three-quarter decline in industrial production, the Company reduced earnings expectations for the second quarter of 2001 to 10-12 cents per share. In addition, Crompton reaffirmed its growth strategy and reported on the status of its divestiture program and its commitment to significantly reduce debt by the end of this year.
New Restructuring Initiative to Yield $60 Million in Cost Improvements
"Our objective is to achieve the lowest cost position in each of our businesses," said Vincent A. Calarco, chairman, president and chief executive officer of Crompton Corporation. "To accomplish this objective, we have developed a series of actions that will enable us to lower our operating costs by approximately $60 million by the end of 2002.
"We have identified facility consolidation opportunities and workforce reductions that will yield significant savings over the next 18 months. Similarly, we have determined that further improvements in working capital control and procurement can also be achieved. We expect that approximately $10 million of this total will be achieved during the second half of 2001, with the remaining $50 million being accomplished in 2002."
Calarco noted that the cost savings achieved from this restructuring initiative will be in addition to the $60 million in merger-related savings achieved in 2000.
Adverse Economic Factors Reduce Second Quarter Earnings
As widely reported, a number of adverse economic factors have contributed to reduced earnings for chemical and other industrial companies this spring. The key issues impacting Crompton are: persistent softness in the U.S. auto production sector; a dramatic drop in industrial production representing the longest period of decline in key industrial indices since the 1982 recession; and significant weakness in capital spending for production machinery. In addition, the lingering effects of high energy and raw material costs and unfavorable foreign currency translation, which were expected to have a negative second quarter impact of $12 million versus the prior year, are now estimated to have an unfavorable impact this quarter of $16 to $18 million.
Crompton's many products for auto applications have generally experienced reduced demand in recent months. Its Polymer and Polymer Additives businesses have been hurt by the extended decline in industrial production, and the Polymer Processing Equipment business has been severely impacted in both sales and margins by the widespread capital equipment spending cutback. Calarco stated that only in June did the Company begin to get meaningful relief from the unprecedented increases in energy and hydrocarbon-based raw materials that began in the second quarter of last year. In addition, unfavorable foreign exchange rates continue to affect results. As a result of the adverse economic factors, Crompton expects second quarter sales to approximate the first quarter of 2001, and expects to report earnings in the 10 to 12 cents per share range.
While recent economic statistics showing improvement in consumer confidence, housing sales and durable goods orders bode well for the future, we have yet to see a measurable upturn in overall demand. "As the economy improves," Calarco said, "we are confident that Crompton is well positioned and leveraged to take full advantage of an increase in demand and to translate that into accelerated profit improvement."
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