Wednesday, October 1, 2003

Old-line firms hit hard



By Mike Boyer
The Cincinnati Enquirer

The last three months are probably a time investors in some of Cincinnati's old-line manufacturers would rather forget.

Milacron Inc., AK Steel in Middletown and NS Group Inc. in Newport led the list of biggest quarterly losers in the Enquirer 80 list of local stocks.

In part, the decline reflects the continuing sluggish economy and the struggles all manufacturers are facing. But it also reflected specific challenges that some face.

For example, Milacron, which led the quarterly losers with a 52.97 percent price decline, announced a new round of cost-cutting at the end of July and suspension of its dividend after reporting a wider-than-expected loss of $91 million, or $2.72 a share, in the second quarter.

Milacron's shares, which hit an all-time low of $2.05 Aug. 26, finished the quarter Tuesday at $2.30, off 12 cents.

Pete Sorrentino, chief investment officer for Cincinnati's Bartlett & Co., said that while some manufacturing stocks have rebounded thanks to the weaker dollar, Milacron continues to be weighed down by investors' uncertainly over debt refinancing issues that the plastics machinery maker still must address.

Middletown's AK Steel, which like Milacron traces its roots back more than 100 years, traded at all-time lows last month after longtime chief executive officer Richard Wardrop Jr. and president John Hritz resigned in a management shake-up.

The company, which has posted continuing losses in the face of higher costs and weaker demand for its steel, finished the quarter with its shares off almost 45 percent.

And higher natural gas prices haven't done much for NS Group Inc., which makes pipe for the oil and gas industry.

After hitting a 52-week high of more than $10 a share in June, NS Group's shares have continued to slip, dropping almost 34 percent in the third quarter.

It's not just manufacturers feeling the third-quarter pain.

Cincinnati Bell Inc., after biting the bullet on its failed $3 billion attempt to become a national player in the broadband business, saw its shares slip 24 percent in the quarter.

Matt McGeary, at Fort Washington Investment Advisors, sees two reasons.

First, he says the integrated telecommunications sector in general was down about 12 percent through Monday, reflecting the slower economy.

Additionally, he said, "a lot of the wind is out of the sails'' of the local telephone company since selling the broadband business and re-structuring its debt.

Higher-than-usual costs to cover problem loans in recent quarters, weak loan growth and some pressure on its net interest margin have been the main culprits that have dampened profits at Hamilton-based First Financial Bancorp, possibly causing weakness in the stock price, said Dan Cardenas, a banking analyst at Howe Barnes Investments in Chicago.

Roto-Rooter Inc., the Cincinnati-based supplier of plumbing and drain cleaning services has slipped almost 7 percent in the quarter, Sorrentino said.

After the Internet bubble burst in 2000, investors fled to small-capitalization growth stocks like Roto-Rooter, which changed its name from Chemed Inc. this year.

Lately, Sorrentino said, those investors have been moving upstream to blue chips such as Procter & Gamble and Microsoft.

Downtown-based drug and medical research firm Kendle International Inc. has been struggling.

For the third quarter, the company's stock fell 11 percent, as the company undertook a massive restructuring and a round of 65 layoffs.

After airline stocks as a whole seemed to stabilize as passenger reports were stronger for the summer than anticipated, Delta Air Lines didn't fare well.

Its stock fell almost 9 percent for the quarter, despite one of the strongest balance sheets among major airlines.

Enquirer reporters James Pilcher and Jeff McKinney contributed. E-mail mboyer@enquirer.com



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