Arco Reports Eightfold Leap in Earnings, Dwarfing Expectations
Atlantic Richfield Co., which has agreed to be acquired by BP Amoco for about $27 billion, said Thursday that its fourth-quarter earnings soared nearly eightfold, beyond the highest expectations, on higher oil prices and cost cutting.
The strong earnings news came amid signs that the stalled merger with BP Amoco, the subject of lengthy negotiations with the Federal Trade Commission, could be approved if the oil companies agreed to additional concessions.
London-based BP Amoco, the world’s third-largest publicly traded oil company, filed formal notice Jan. 14 that it would proceed with the transaction in 20 days, setting the stage for a possible legal fight with the FTC. The commission must decide by Feb. 3 whether to challenge the combination in court.
On Thursday, people familiar with the discussions said FTC negotiators have told BP Amoco they might approve the purchase if the company divested Arco’s 32% share of Alaskan oil production. FTC staff lawyers offered the plan this week in what could be a last-ditch effort to head off a court battle, according to sources quoted by Oil Daily.
Meanwhile, Los Angeles-based Arco said profit from operations climbed to $541 million, or $1.64 a share, from $70 million, or 22 cents, a year earlier. Analysts had expected on average $1.49 a share from Arco, with $1.61 the high forecast, according to First Call/Thomson Financial.
Revenue rose 38% to $3.74 billion as crude oil prices topped $26 a barrel in December, the highest level in almost three years.
Cost cuts, including the elimination of about 1,300 jobs, saved more than $400 million last year, Arco said. The company expects the measures to allow it to go on saving $650 million a year before taxes.
“A lot of folks might be inclined to take up their earnings [estimates] for Arco,” said Jay Wilson, an analyst at J.P. Morgan Securities, who has a “market perform” rating on the shares. “Based on fundamentals alone, this stock is not a bad value.”
Arco is expected to earn $1.43 a share in the first quarter, up from 53 cents a year earlier, according to First Call.
The company’s stock had fallen 21% from Nov. 30 through Wednesday on concern that U.S. antitrust regulators would block BP Amoco’s buyout because of concerns over the combined companies’ control of Alaskan oil production and their resulting influence on West Coast gasoline prices.
Arco shares closed unchanged at $77.38 on the New York Stock Exchange. Most other oil issues were down with lower oil prices.
BP Amoco’s American depositary receipts, each representing six ordinary shares, fell $1.31 to close at $54.69, also on the NYSE.
