Bethlehem Steel Chief Hopes to Break Cycle of Losses : Industry: A symbol of smokestack America, the company is a shell of its former self, but this year is expected to be profitable.

Curtis H. Barnette joined Bethlehem Steel Corp. when it still made money and paid dividends.

A quarter-century later, the company’s chairman and chief executive is hoping to break a cycle of losses and restructurings at Bethlehem, one of the nation’s best-known steelmakers and a symbol of smokestack America.

Bethlehem today is a shell of its former sprawling self, but like other companies in the American steel industry, it has grown smarter and more efficient, learning the hard lessons of complacency in a global economy.

The company is taking on small, nimble competitors and exploring such new and largely untapped steel markets as residential construction.

Barnette also has taken a lead role in fighting for what the domestic steel industry regards as its vital interests. He is considered an articulate and influential critic of foreign steelmakers, who in his view are undermining the global steel market with unfairly low prices.

While it hasn’t paid a dividend since December, 1991, Bethlehem did report a profit in the third quarter last year after 11 consecutive unprofitable quarters. In the fourth quarter, the company went into the red again from the onetime cost of revamping its structural products business.

“We expect that Bethlehem will be profitable for the year 1994,” Barnette said in releasing the final quarter results.

When extraordinary adjustments to Bethlehem’s balance sheet aren’t included, the company made $47 million in the fourth quarter, exceeding most analyst expectations.

“It was impressive, but my concern is still industry fundamentals,” said Vahid Fathi, metals analyst for Kemper Securities, a Chicago investment firm. He projects earnings of $1.15 to $1.50 a share for 1994, below the consensus of $1.80.

“I believe the European steel companies are gearing up production to flood our market, because the U.S. market is the only bright spot as far as demand is concerned,” Fathi said.

Barnette said the company does not expect a disruptive surge of imports, but he has learned to assume nothing in the tough world of steelmaking. “It would be regrettable if we saw a surge of unfair trade,” he said. “We are prepared to deal with it.”

Jordan Estra, who follows Bethlehem for Merrill Lynch & Co., said he foresees better than expected earnings over the next year or two and believes the company’s stock is a bargain at its current price in the low $20s.

“I think that they are continuing to remake the company under Barnette’s leadership to focus on quality products, catering to an ever more fussy customer base,” he said.

Bethlehem was founded in 1904 by Charles M. Schwab, one of Andrew Carnegie’s top lieutenants. The company’s only losing years through 1981 were in 1932, 1933 and 1977. But starting with 1982, the company has rung up only three annual profits--in 1987, 1988 and 1989.

The dividend to shareholders, a usually sacrosanct corporate expense that management cuts only as a last resort, was suspended for 15 quarters from 1985 to 1989 and again since the end of 1991.

Barnette, 59, said he’s cautious about predicting a sustained profit for Bethlehem, which has shrunk to a shadow of the behemoth that made a ship a day during World War II and made the steelwork for landmarks from Rockefeller Plaza in New York to the Golden Gate Bridge in San Francisco.

“We have a very cyclical business,” he said in a recent interview from the company’s hometown of Bethlehem in eastern Pennsylvania. “I tend at this early point to do this one step at a time.”

Barnette said his goals are to create a more efficient and quality-conscious company while seeking new markets for Bethlehem products. “I predict that we may see steel as the material of choice in the housing industry,” he said.

At present, only about 2% of homes are framed with steel, said Michael Carliner, an economist with the National Assn. of Home Builders in Washington. “But there is a lot of interest in steel among home builders,” he said, citing sharp rises in wood prices as a factor.

Barnette also expressed optimism about steel’s role in rebuilding the nation’s infrastructure. “Bridges and roads and a lot of the water systems throughout America--that’s a building opportunity, a steel opportunity, whose time has come,” he said.

An attorney by training and a former Army counterintelligence officer, Barnette succeeded Walter F. Williams as chairman and chief executive in November, 1992, after serving as general counsel and senior vice president.

During his first year as chief executive, Barnette presided over a reorganization that turned four divisions into separate business units--Burns Harbor, Sparrows Point, Bethlehem Structural Products Corp. and Pennsylvania Steel Technologies Inc. The move was intended to give local managers more accountability for marketing, production and financial performance.

“In my mind, Bethlehem has been the most bureaucratized of all the traditional steel companies,” said John Jacobson, an independent management consultant based in Swarthmore, Pa. “Over the long haul, this is what’s going to make or break the company.”

Bethlehem also reached a new six-year labor contract with the United Steelworkers that freezes wages for three years and allows the company to impose more flexible work rules while the union gets to nominate a member of the company’s board of directors.

Veritas Capital Inc., a New York investment firm, agreed in December to buy the former Bar, Rod & Wire Division in Johnstown, Pa., and Lackawanna, N.Y. A new corporation formed by Veritas and union members, BRW Steel Corp., plans to put 1,100 people back to work at the mills within five years.

Bethlehem, which employed 131,000 people in the late 1960s, has exited several businesses and cut its work force to about 21,000 today. Barnette said he foresees employment closer to 18,000 as the company gets even leaner.

“They’ve been very difficult years and there are some difficult years ahead,” Barnette said.

“There is never an end to your search to do things better.”