Refocused Rockwell Reignites

By JOHN O’DELL

Jan. 17, 1996 12 AM PT

TIMES STAFF WRITER

SEAL BEACH —

A sharply refocused Rockwell International Corp. released strong first-quarter results Tuesday and said it will shed its printing equipment division.

The commercial and newspaper printing press unit accounted for about 4% of Rockwell’s operating profit and 5% of revenue last year. But the Graphic Systems division has been affected by declining worldwide publishing markets and no longer fits the company’s plan to concentrate on its core electronics, automotive and aerospace businesses, said Chairman Donald R. Beall. Rockwell could realize more than $530 million from the sale.

Rockwell reported a profit of $192 million for its fiscal 1996 first quarter, up 16% from $165 million for the year-ago period. Revenue for the quarter ended Dec. 31 rose 24% to $3.1 billion.

Graphic Systems actually lost $1 million in the quarter because of an unexpected decline in sales, said Mike Barnes, Rockwell’s chief financial officer. Sales in the division dropped by about 50% to $110 million for the period, he said.

“We had one small loss in this quarter, but for the full year [Graphic] will be extraordinarily profitable,” he said. While the division’s profits have climbed substantially in recent years, the $66 million reported for fiscal 1995 remains well below the $121 million posted in 1991.

Conversely, soaring business at the company’s Newport Beach-based semiconductor division accounted for almost all of the corporate profit increase, Beall said. Operating profit from the unit hit $82 million, equal to 42.5% of Rockwell’s total operating profit.

Rockwell’s semiconductor sales more than doubled to $286 million from $132 million a year ago, largely because of increasing demand for the company’s new high-speed computer modem chip set, which facilitates access to the Internet. “Clearly, the Internet has been a big boom for our business,” said Barnes.

The huge profit margins aren’t expected to continue, however. The sales pace “will stay for the balance of the year,” Barnes said, “but operating expenses didn’t catch up in the first quarter. We will be putting a lot of money into product development and other expenses in ensuing quarters, so the profit margins will shrink.”

Even without the Internet demand, however, the market for equipment to improve communications links between PCs will continue to be strong, he said.

Analysts said Rockwell is in position to exploit that growth. The company controls about 70% of the market for the microchips used in modems and faxes, and is making chips for wireless communications systems.

Analysts also said the move to sell the printing press unit makes sense because of the awkward fit with other Rockwell business lines.

Investors seemed to like the dual announcements. Rockwell’s stock price climbed by $1.875 a share Tuesday to close at $55 on the New York Stock Exchange.

Barnes said Rockwell is negotiating with “several” potential purchasers and that a deal is expected to be complete by the end of the company’s fiscal year on June 30. The sale is expected to net Rockwell more than the division’s book value of $527 million, he said. The graphics division’s Goss presses are used by two-thirds of the daily newspapers in the country.

The 2,900-employee division is based just outside of Chicago and has U.S. facilities in Illinois, Iowa and Pennsylvania and overseas operations in England, France, Japan and China.

Rockwell has hired Dillon Read & Co. of New York as advisor in the selling process.

Under Beall, Rockwell has worked for several years to eliminate its dependence on defense and other government contracts.

Sales in commercial and international business segments, excluding the Graphic Systems division, rose 40% from the fiscal 1995 first quarter and accounted for 75% of total sales in the first three months, Beall said. A year ago, commercial and international business brought in 67% of Rockwell’s first-quarter sales.

Rockwell’s contracts with various U.S. government entities once accounted for 70% of the company’s business but represented only 25% of sales in the first quarter.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Rockwell on a Roll

For the fiscal first quarter ended Dec. 31, Rockwell International reported a surge in profit and revenue. The firm also announced that it is seeking a buyer for its graphic systems division, which designs and manufactures printing presses. Declining publishing markets worldwide have cut into the division’s sales since 1991.

Graphic Systems Profile

Headquarters: Westmont, Ill.

Other U.S. locations: Cedar Rapids, Iowa; Reading, Pa.

Foreign locations: Preston, England; Nantz, France; Sayama, Japan; Shanghai, China

Employees worldwide: 2,900

First-Quarter Results

(in millions, except per-share data) *--*

Percent 1995 1996 change Total revenue $2,459 $3,062 24.5 Net earnings 165 192 16.4 Earnings per share 0.74 0.87 17.6

*--*

Sales (millions)

1991: $962

1992: $688