Ameron’s Warning on 1998 Earnings Sparks Stock Sell-Off

Blaming construction delays and economic turmoil in Asia, Ameron International Corp. on Monday pared back 1998 earnings expectations by more than 20%, sparking a plunge in its stock.

Ameron shares fell $4, or about 9%, to $45.81 in New York Stock Exchange trading, the lowest closing price since late-1996.

The drop came on news that Ameron had slashed 1998 per-share earnings projections to as low as $4.02 from what would have been a record high of $5.20 if realized.

The new figure represents a 71-cent drop from record earnings of $4.73 a share last year.

Analyst Matt Desmond of Red Chip Review said the sell-off was a “bit of an overreaction.”

“I think they still have a solid business,” said Desmond, whose Portland, Ore.-based newsletter reports on small companies. “I don’t think things are grave enough to shed such a significant portion of the market value.”

The announcement marked another chapter in what has already been a tough year for Pasadena-based Ameron, a maker of water pipes, protective coatings and other materials for construction projects.

The company suffered first-quarter losses and sluggish second-quarter earnings, blamed primarily on a six-week strike by workers at its Fontana plant and a lag in orders for piping and protective paints caused by El Nino-related weather delays on construction projects, the company said.

Ameron had hoped to make up for the poor first half with a $151-million backlog in orders, spokesman Dan Stracner said.

But the company’s outlook has worsened in part because of the sharp drop in crude oil prices since last year. That has curtailed new drilling activity and thus orders for fiberglass piping.

A slowdown in construction projects in Asia, as the region’s economies have slumped, has also hampered Ameron, Stracner said.

As part of efforts to integrate British competitor Croda Coatings, which Ameron acquired in April, the company has begun looking for ways to cut costs. In the last two weeks, Ameron has laid off nearly 275 managerial and administrative employees, Stracner said, and is looking to consolidate some of its manufacturing operations.

In an interview Monday, Ameron chief executive James Marlen said the company has already targeted plants in Australia and Britain for closure.

“We believe some of the contraction may be temporary, but I don’t want to take any chances,” Marlen said. “I think this is already a lean company, and we’re going to be even leaner.”