After six years of back-to-back restructuring efforts, Celestica Inc. told shareholders yesterday that further cost reductions are part of the plan for achieving healthy profits one day.
The trouble is there is little left to cut, and some analysts now value the stock at just pennies more than its book value. The stock traded at more than six times book value in 1999.
Celestica is on its sixth restructuring plan, and third chief executive officer, since 2001. Thousands have been laid off and the bulk of the company's business has been shifted to low-cost manufacturing countries. But profits still remain elusive.
First-quarter losses doubled to $34.3-million (U.S.), sales slipped 5 per cent to $1.84-billion compared with the year-earlier period, and the company burned up nearly $100-million of cash, Celestica reported late Wednesday.
Problems with operations in Mexico and Europe remained, with both regions continuing to lose money.
While Celestica's newly formed team of seasoned leaders is making changes in Mexico to improve operations, it hasn't been able to institute them fast enough to compensate for declining business. Losses there actually widened by about $1-million from the previous quarter to $17-million. In Europe the loss was steady at about $11-million.
Capacity in these two regions is at best only in the low 50-per-cent range, according to CIBC World Markets Inc. analyst Todd Coupland.
Celestica "will continue to lose share and incur restructuring charges for the foreseeable future," Carter Shoop, an analyst with Deutsche Bank Securities Inc., wrote in a report. He thinks the stock is worth about $5.50.
One of the problems is too much inventory across the whole industry, Craig Muhlhauser, Celestica's chief executive officer, told shareholders. The former Ford Motor Co. executive wants to bring the same methods of efficiency to his manufacturing processes as the Japanese auto makers have brought to theirs.
Celestica, which makes electronics equipment for other companies, has closed plants in North America and Europe and now conducts 85 per cent of its business out of low-cost centres such as Asia.
The company booked a restructuring charge of $8-million in the first quarter as part of its latest cost-cutting plan, expected to hit between $20-million and $40-million for the full year.
Even the future of the company's flagship property in Toronto is not secure as executives move to utilize assets better. Celestica is in the process of moving 80 to 100 of the most senior staff out of the complex to a smaller building nearby. But the manufacturing plant on the site will remain in operation, Mr. Nicoletti said.
Mr. Muhlhauser outlined his key goals for the year to shareholders, which included reaching profitability in Mexico and Europe, restoring confidence among customers and managing inventory and assets better.
The company also announced that it had renegotiated access to a revolving credit facility after failing to meet certain covenants early in the year. The size has been reduced to $300-million from $600-million. None of the credit facility has been tapped and Celestica does not expect to be borrowing from it any time soon, Mr. Nicoletti said.
Celestica
Close: $6.48 (U.S.), down 5 cents
