Sunday, January 4, 2004

4th quarter gentler for the year's underperformers


Local stock laggards

By Jeff McKinney
The Cincinnati Enquirer

The rising tide that boosted stock prices of their peers was not enough to lift the boats of two of Greater Cincinnati's old-line manufacturers.

AK Steel Holding Co. and Milacron Inc. were the biggest losers in the Enquirer 80 Index, composed of companies based locally or with substantial local operations.

The decline came as U.S. manufacturers in the industrial sector of the Standard & Poor's 500 Index produced one of the market's best-performing returns in 2003, rising 30 percent, said Pete Sorrentino, chief investment officer at Bartlett & Co. in Cincinnati. Further, just 14 Enquirer 80 stocks fell last year.

Sorrentino said the falling dollar and expectations of a stronger economy created higher demand for manufactured goods and increased the value of many of those stocks.

But Milacron's stock continues to be hurt by declining revenue and deteriorating operating performance, Sorrentino said. The company's product placement also has not been in step with the market, and it has lost sales to competitors, he said. The company's stock dropped 29.9 percent.

High expenses

Declining revenue also tarnished Middletown's AK Steel. Sorrentino said the company's sales should have risen given the strong demand for steel from the automobile and home appliance sectors. A favorable pricing environment because of steel tariffs President Bush imposed last year on imported steel also should have helped the company.

But even with those factors, AK Steel could not capitalize because of high expenses. It lost $278 million in the third quarter, versus a profit of $17 million in the same period in 2002, Sorrentino said. Its stock fell 36.3 percent.

Manufactures were not the only Tristate companies that felt the stock pinch.

Inconsistency haunted health-care testing company Kendle International, causing its stock to slip 28 percent last year. Sorrentino said Kendle has not delivered sequential quarterly revenue improvements, making investors jittery because of the lack of predictable operating results.

And banks particularly underperformed the overall market.

Fifth Third Bancorp, typically a darling among Wall Street banking analysts, saw its stock rise only 0.9 percent.

Ross Demmerle, a banking analyst at Hilliard Lyons in Louisville, said a Federal Reserve investigation of Fifth Third's accounting operations continues to raise concerns with investors, hurting the stock's value.

Among other things, the probe has stopped the $89 billion-asset Fifth Third from doing acquisitions, a key part of its growth.

"That has created a cloud over the company's stock," he said.

Demmerle also said Fifth Third has reached the asset size where some investors are questioning whether the Cincinnati banking giant can sustain its high valuation. That luxury has helped Fifth Third do stock deals to buy other banks.

The parent of Peoples Community Bank in West Chester saw its stock price slide 0.9 percent despite strong profits last year.

Tom Noe, an executive vice president at Peoples Community Bancorp, said the slight stock price decline is the market reacting to the banking company's run-up in price after it went public in 1999.

"The stock price is now in line with actual performance, instead of trading on expectations of performance after the offering," he said.

Hamilton-based First Financial Bancorp, like Peoples a community-oriented banking company, saw its stock price dip 2.7 percent last year.

Negative factors

Demmerle said the stock has been hurt by inability to complete a reorganization of its affiliate banks and by poor fundamental performance. He also said the absence of a chief executive has not helped the stock. Former president and CEO Stanley Pontius left the $3.9 billion Hamilton-based company in October.

The stock at another local financial-services company also has been hit by various elements.

Cincinnati Financial Corp., Fifth Third's largest institutional investor with 12.8 percent of its stock, has been affected by Fifth Third's declining stock value. Cincinnati Financial's stock ended the year up 11.2 percent.

Michael Dion of Sandler O'Neill & Partners of New York said that as Fifth Third's stock dropped in value, so did Cincinnati Financial's investment portfolio. He said Cincinnati Financial also was among several regional property and casualty insurers hurt by severe weather-related losses the past six months, particularly its homeowner's business.

But he still has a "buy" rating on the stock, saying Cincinnati Financial's fundamentals are strong and its commercial business could benefit from good underwriting profits next year.

Other local stocks that had rough rides last year included LanVision Systems, Cintas and Regent Communications.

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E-mail jmckinney@enquirer.com




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