Spartech Corp. (SEH) swung to a fiscal fourth-quarter earnings loss on write-downs, although the packaging company's adjusted results were still below expectations.
Gross margin slumped to 8.8% from 13.2%. The company said Monday the drop reflected inefficiencies caused by plant consolidation efforts and equipment line moves, which included higher labor, product returns, freight and workers compensation expenses.
Chief Executive Victoria Holt said she still "strongly" believes manufacturing changes will provide a more cost efficient infrastructure and position the company for earnings growth in the long term. But she acknowledged the company has made mistakes in implementation that have slowed its recovery.
Spartech also cited higher priced materials and increased competition for the weak margin.
The company, which makes plastic sheeting, compounds and other packaging products, has been struggling with a slower recovery than it expected. It has said the U.S. construction and recreation/leisure markets in particularly remain very weak. Spartech saw demand drop in the recession, prompting it to lay off workers and shut plans. The effect of cost cuts and better productivity had been buoying results, but in the previous two quarters the bottom line has been disappointing.
In September, Spartech replaced its chief executive with board member Holt, a former executive of paint-and-chemical supplier PPG Industries Inc. (PPG). She's the company's third chief executive in five years.
For the quarter ended Oct. 30, the company posted a loss of $55.7 million, or $1.80 a share, compared with a year-earlier profit of $8.2 million, or 26 cents a share. The latest results included large write-downs, among other items. Excluding them, earnings from continuing operations fell to a penny from 15 cents.
Revenue increased 7% to $259.6 million on a slight increase in volume and the effects of higher prices as the company passed along higher raw material costs.
Analysts surveyed by Thomson Reuters had expected earnings of six cents on revenue of $273 million.
The custom sheet and rollstock segment, Spartech's biggest by sales, saw its operating profit plunge 60% even without the items, as revenue fell slightly. The division for packaging technologies posted a 22% decline in profit.
Spartech shares closed Monday down 1.6% at $9.74 and weren't active following the earnings report. The stock has fallen 5.1% so far in 2010, underperforming the broader market.
-By Joan E. Solsman, Dow Jones Newswires; 212-416-2291; email@example.com