Advertisement

Profit Could Mark Turning Point, Analysts Say : Zenith in Black for 1st Time in 4 Years

Share
From Associated Press

Zenith Electronics Corp., the only domestic television maker, reported the first annual profit in four years Tuesday, attributing the performance to booming computer sales and modest growth in its consumer electronics division.

Some industry analysts said the $11.7 million in 1988 net income could mark a turning point in the company’s fortunes.

But Chairman Jerry Pearlman said Zenith’s management was continuing to explore all avenues--including selling all or part of the consumer electronics business--to keep the company profitable.

Advertisement

“We are mindful of our responsibilities to our shareholders to increase the value of their investment in Zenith,” Pearlman said in a statement. “We have not ruled anything out.”

Zenith reported net income for the fourth quarter of $20.4 million, compared to $4.7 million for the last three months of 1987.

Sales for the period totaled $841 million, a 23% increase from fourth-quarter 1987 sales of $686 million.

The results included a one-time gain of $6.4 million, which represented a reduction in income taxes from operating losses that were carried forward from the previous year.

Sales Gain 14%

Zenith’s full-year net income of $11.7 million contrasted with a net loss of $19.1 million in 1987. Zenith lost $10 million in 1986 and $7.7 million in 1985. In 1984, its last profitable year, the company had net income of $63.6 million.

Zenith’s sales for all of 1988 totaled $2.7 billion, up 14% from 1987 sales of $2.4 billion.

Advertisement

Sales of Zenith’s highly regarded computer systems and components climbed 23% in 1988 to nearly $1.6 billion, while revenue from the recovering consumer electronics division rose 2.7% to $1.1 billion.

Zenith had said in October that it expected to show a pretax profit in 1988. But several industry analysts said they were surprised the company did better than break even after taxes.

“I’m encouraged by the results,” said Julian Menear, an analyst with the New York investment firm Pershing & Co. “They’ve got some difficulties ahead, but this shows they are able to make money in consumer electronics.”

Charles Ryan of Merrill Lynch & Co. in New York said the 1988 earnings signaled a “major improvement” in Zenith’s TV and video equipment business. He predicted further gains for that segment in 1989 as prices rise and more U.S. consumers opt for the pricey large-screen and stereo TV sets that Zenith produces with great efficiency.

But James Magid of Needham & Co. was less enthusiastic about Zenith’s future.

“There is no reason to suppose this is a major turning point,” he said from New York.

Increased Efficiency

Zenith’s TV business nose-dived in the mid-1980s as a flood of low-priced South Korean-made televisions reached U.S. markets, joining the low-priced Japanese models already on shelves. Zenith recently asked the Commerce Department to monitor imports for illegal “dumping” of TV sets at unfairly low prices.

Since 1985, the company has concentrated on increasing its manufacturing efficiency through employee reductions and plant consolidations.

Advertisement

Those moves put the company in an ideal position to profit from the increased demand for U.S.-made products that has resulted from the dollar’s plunge in value against foreign currencies.

At the same time, Chinese demand for televisions has increased dramatically with the opening of that country to foreign trade, creating a worldwide shortage of picture tubes.

Zenith has benefited from the tight-supply situation, which is not expected to ease this year, and the company announced last week that it was hiring 600 people at its picture tube plant in the Chicago suburb of Melrose Park to increase production.

The company also is working on a high-definition television system that it hopes the government will select as the U.S. standard for the new technology. That would bring Zenith lucrative patent royalties.

Despite these positive signs, analysts said Zenith still lags behind foreign producers in sales of portable televisions with screens measuring less than 19 inches diagonally, a market that constitutes a large chunk of U.S. demand.

ZENITH EARNINGS

Annual net income in millions of dollars

‘84: 63.6

‘85: -7.7

‘86: -10

‘87: -19.1

‘88: 11.7

Source: Associated Press

Advertisement