Beth Steel making strong comeback


Bethlehem Steel Corp., held back a year ago by a

combination of bad weather and essential plant repairs, is expected to come roaring back in this year's first quarter and go on to finish 1995 with some of the highest profits it has enjoyed in decades.

"They're going to have a good quarter," said Charles A. Bradford, a metals analyst for UBS Securities Inc., a New York investment banking firm. "Second quarter they should do mind-boggling."

Even so, analysts warn, don't count on Bethlehem's stock joining along for the ride. They are already looking ahead to the cyclical industry's possible downturn in late 1996.

Bethlehem's turnaround is particularly striking when compared with the past few years. And while any profit would be welcome relief from the company's overall operating losses of $1.7 billion from 1990 to 1993, the results expected this year would be impressive.

Mr. Bradford said he expected the nation's No. 2 steelmaker to earn $50 million, or about 35 cents a share, in the first quarter. That would amount to nearly a fourfold increase over net income of $12.9 million, or 2 cents per common share, reported in the same period a year ago. In the second quarter, Mr. Bradford predicts earnings climbing to $100 million, or 83 cents a share.

Overall, analysts estimate Bethlehem's first-quarter earnings -- which are due to be released April 25 -- will range between 48 cents and 22 cents a share, with a mean estimate of 38 cents, according to I/B/E/S Inc. The mean estimate for the second quarter is 69 cents and the prediction for the year is $2.77 a share, I/B/E/S said.

Bethlehem, owner of the Sparrows Point steel mill in Baltimore County, last year reported its first annual profit in four years. But the net income of $80.5 million, or 35 cents a share, paled in comparison with other steel companies, which were able to take full advantage of the best steel market in 20 years.

Expenses associated with the rebuilding of a coke oven and the relining of a blast furnace -- both at Bethlehem's Burns Harbor, Ind., plant -- added $150 million to the company's expenses. In addition, the frigid 1994 winter depressed the company's earnings in last year's first quarter as shipments of its finished products were interrupted.

"We are primed and going," said David P. Post, Bethlehem's senior vice president for commercial. "We have no major outages planned for repair or maintenance anywhere in our system."

Employment at Sparrows Point, the company's second-largest plant, is expected to remain stagnant at 5,400 as the company shifts workers from other plants to replace retiring employees here and relies on overtime work, said Bethlehem spokesman G. Ted Baldwin.

While steel industry shipments during the quarter were running ahead of last year, they are expected to decline a slight 3 percent during the year to about 92 million tons, according to Mr. Post.

At the same time, however, domestic steelmakers' share of the U.S. market could increase as strengthening overseas economies siphon off foreign competition, he said. Indeed, the foreign market is so good -- and the value of the dollar so low -- that Bethlehem is negotiating to ship 50,000 to 60,000 tons of steel to Taiwan and Italy.

Bethlehem's fortunes also have improved because of a 7 percent increase in average steel prices that took effect in January.

All this good news, however, has failed to boost stock prices.

Bethlehem's stock, which still does not pay a dividend on its common shares, has been driven down to around $15 to $16 a share after reaching a high of $23.75 a share on Aug. 2. It closed Thursday at $15.625 a share.

This anomaly is caused by investors looking past the present good times and to an anticipated downturn in 1996, according to Donald L. Wampach, an analyst with Duff & Phelps Equity Research based in Chicago.

"We don't think the investors are getting paid on a near-term basis for the still-strong fundamentals that appear to be in place for 1995 and probably 1996," he said. As a result, Duff & Phelps recently downgraded Bethlehem and other steel stocks from a "buy" to "a source of funds" -- just a notch above a "sell" recommendation.

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