Pacific Enterprises Cuts Dividend 50%
Pacific Enterprises, parent of Southern California Gas and Thrifty Drug, signaled tougher times ahead by slashing its dividend 50% Tuesday.
The company also warned that Thrifty may lose money this year--a major disappointment to analysts who had expected the beleaguered retailer’s fortunes to improve.
Analysts said the dividend cut and the Thrifty projection probably will cause another sharp drop in the company’s stock price--from $31 at Tuesday’s close to perhaps $26 to $27 today. The announcements were made after markets closed.
Pacific said its board cut the quarterly dividend to 44 cents a share from 87 cents. The new annual dividend rate will be $1.76, down from $3.48.
The move had been expected. Pacific, burdened by problems at Thrifty and at its oil-exploration unit, hasn’t earned enough to cover a $3.48-a-share dividend since 1988--despite steady profit at its mammoth gas utility, the nation’s largest.
Pacific said earlier this year that a dividend cut might be in the cards. That warning, in mid-March, sent the stock down to $35 from $42 in one day. Recently, the price has drifted lower on expectations that the decision would be imminent.
However, several analysts said Tuesday that they were surprised by the severity of the cut. “I had expected a 30% to 35% cut,” said Gary Hovis of Argus Research in New York.
Shearson Lehman analyst Daniel Tulis also was disappointed. He expected the new dividend to be $1.80 to $2 a share.
Tulis said the 50% cut and the news on Thrifty showed that the drugstore chain remains “an open-ended problem” for Pacific. The retailer has stumbled badly in recent years as it searched for an identity in an increasingly competitive market.
James Ukropina, Pacific’s chief executive, said in a statement that “Thrifty’s new management team appears to be on the right track with revised marketing and merchandising strategies.” Still, he said, “we now believe our retail segment will not generate profits before 1992, and that Thrifty Corp. may incur a loss for the full year of 1991.”
Reducing the dividend, Ukropina said, is “clearly a difficult decision . . . (but) the right choice for the long-term interests of the company.” The cut “will improve Pacific’s cash position, strengthen our balance sheet and provide a cushion for contingencies,” besides conserving money for long-term expansion, Ukropina said.
The Gas Company’s Slide The stock price of Pacific Enterprises, parent of Southern California Gas and Thrifty Drug, has slumped badly this year, and now is likely to drop futher after Tuesday’s divided cut. Jun ‘91: Tuesday close: $31.00
