Oil Firm Hikes Quarterly Dividend by 12.5%, Plans Stock Buy-Back : Arco’s Earnings Jump Sharply in 4th Quarter

Atlantic Richfield announced that it was boosting its quarterly dividend by 12.5% Monday after recording another sizable rise in profit for the fourth quarter. The company also said it would start buying back more of its stock.

Arco’s performance, at or slightly above the levels predicted by some analysts, marked a continuation of strong profits in its chemical business and retail gasoline operations that more than offset weaker prices for crude oil.

Arco said it earned $391 million in the October-December quarter, a gain of 15% over the previous year’s comparable figure of $340 million. Sales slipped about 2% to $4.5 billion.

The results drove the Los Angeles-based company’s full-year earnings up 29% to $1.58 billion. Sales rose to $18.3 billion from $17 billion.

The rise in the quarterly dividend on common shares, to $1.125 a share from the current $1, is payable March 15 to stockholders of record Feb. 17.

Oil analyst M. Craig Schwerdt of Wedbush Morgan Securities in Los Angeles called the dividend increase “overdue” given Arco’s strong earnings over the past two years. He also said the results underscore that its chemical operations now dominate the company.

Subsidiaries Lyondell Petrochemical Co. and Arco Chemical Co. together accounted for $929 million of the year’s net income, or nearly 60%.

The fact that the company’s chemical business is operating at virtual capacity prompts Schwerdt to forecast only a modest increase in earnings this year, to $9 a share, with a likely spurt in crude oil prices to be partly offset by slimmer profits in gasoline.

Arco also announced a new buy-back program for its common shares, but didn’t say how much it would buy back or when. Chairman and Chief Executive Lodwrick M. Cook called the program “a flexible one which will depend upon the company’s cash flow and our other investment needs.”

The company repurchased 62.6 million shares of its common stock under a previous buy-back program begun in 1985 at an average price of $63.47 per share. The company said it now has 176.1 million common shares outstanding. Arco shares closed Monday at $85, down 12.5 cents.

Funds to buy back more common shares are expected to come from the proceeds of the recent public offering of shares in Lyondell Chemical, which raised about $1.2 billion.

Arco’s improved profitability came in the face of a steep 35% decline in after-tax earnings from oil and gas exploration and production. The company said it collected just $9.90 per barrel of crude last year, compared to $12.56 in 1987.

But that in turn contributed to a 145% surge in profits for its gasoline refining and marketing operations, whose profit margins widened dramatically because of the lower feedstock prices.