Pacific Enterprises to Cut Exploration, Shed Some Assets
Pacific Enterprises announced an array of cost-cutting plans Wednesday, including a $110-million reduction in its energy exploration and production budget for next year and an undetermined number of related layoffs.
The company, whose biggest and most profitable unit is the Southern California Gas Co. utility, also said it is looking for buyers for “non-strategic assets” in its troubled retailing and energy exploration operations.
A Pacific spokesman declined to specify which assets might be involved, other than to rule out the sale of the company’s Thrifty Drug and Big 5 sporting goods retail chains.
Wall Street analysts--many of whom have sharply criticized Pacific’s move into retailing and energy exploration in the 1980s--generally welcomed the cost-cutting news.
“At least they’re going to stop throwing good money after bad,” said David Fleischer, an analyst with Prudential Securities.
Pacific also reported a second-quarter profit of $41 million Tuesday, which was roughly in line with analysts’ expectations. The profit, which amounted to 52 cents a share, came on revenue that fell 3% to $1.56 billion.
In the same quarter a year earlier, Pacific lost $229 million, or $3.34 a share, largely because of accounting adjustments totaling $275 million in its ailing retailing and energy exploration divisions.
To cut costs and reduce its overall debt of $2.4 billion, the company said it will slash energy exploration and production spending in 1992 to $90 million from $200 million. Tom Sanger, a Pacific spokesman, said the decision partly stemmed from natural gas prices that have hit a 15-year low.
The result, he said, is that the company’s Dallas-based Pacific Enterprises Oil Co. unit will curb drilling at some of its holdings in Wyoming, Texas, Oklahoma, Louisiana and Alabama. Sanger said that all of Pacific’s planned layoffs will be at the energy exploration unit but that company officials have not determined how many of the operation’s 450 employees will be dismissed.
Although many industry observers expressed hope that Pacific is refocusing its attention on its successful utility company, a Wall Street analyst called the energy exploration cutback shortsighted.
Maintaining that gas prices will recover, analyst Gary F. Hovis of Argus Research said Pacific should press ahead with its energy exploration, “but they don’t seem to be able to stomach it any more.”
Pacific also said it would cut costs by freezing hiring at its Los Angeles headquarters, which has a staff of about 300. In addition, the base salaries of about a dozen of Pacific’s executives will be frozen, but they still will be eligible for bonuses linked to the company’s performance.
Among those affected will be Pacific’s chairman and chief executive, James R. Ukropina. Last year, he received a base salary of $575,000, which will be frozen this year, and cash bonuses of $416,000, which will not be frozen.
The salary and hiring freezes will not apply elsewhere in the company, which employs nearly 28,000 in California and 41,000 nationally.
Pacific’s latest moves follow a series of management shuffles and cutbacks to turn itself around, after losing $43 million on sales of $6.9 billion last year.
On Tuesday, Pacific announced that it recruited William E. Yingling III, the head of Lucky supermarkets in Southern California, to be chairman and chief executive of its Thrifty Corp. retailing division. The 1,050-store division is made up of six drugstore and sporting goods chains.
Also, Pacific announced in June that it would halve its stock dividend.
In trading on the New York Stock Exchange, Pacific’s shares climbed 87.5 cents to close at $27.385. The shares remain, however, near their 52-week low of $24.25 and off from a 52-week high of $43.385.