Sept. 29, 2000, 8:18PM

Jump in energy costs prompts rail-car parts maker to cut back By SUSAN CHANDLER Chicago Tribune

CHICAGO -- The list of companies being pummeled by high fuel costs just keeps getting longer.

ABC-Naco Inc., a maker of high-performance railroad-car components, says second-quarter losses will be higher than expected because its railroad customers are being squeezed by higher energy costs.

The Downers Grove-based company, which formerly was known as ABC Rail Products, also said that it will close its Melrose Park manufacturing facility and sell its Baltimore brake-shoe manufacturing plant in a drive to improve efficiency.

"We continue to feel the negative impact of the pullback in spending levels by the railroads," said James Singsank, ABC-Naco's chief financial officer. "Fuel is a large expenditure for railroads. If I have to pay more for fuel, then maybe I can postpone buying a normal maintenance item."

The shuttering of the Melrose Park plant, which makes couplers that attach rail cars, will result in the layoff of about 300 salaried and hourly workers. The hourly workers are members of Local 477 of the United Auto Workers union.

A few jobs will be added at ABC-Naco's plant in Cicero, which makes side frames and bolsters for the truck assemblies that go under rail cars, the company said.

The sale of the Baltimore plant to an unnamed buyer is expected to close early in the fourth quarter. It is the first of several anticipated sales of non-core assets that will help the company reduce its debt level to about 50 percent of capitalization.

The consolidation also will help ABC-Naco reach its goal of eliminating 1,200 jobs ahead of schedule, Singsank said. The company has been able to cut jobs by introducing computer-assisted manufacturing technology at some of its plants.

ABC-Naco said it will take a $12 million charge in the third quarter related to the implementation of new technology.

Although disappointing to investors, the company's problems are largely out of its control, said Andrew Meister, a research analyst with Robert W. Baird & Co. in Milwaukee.

"It's no fault of the company's," he said. "You can be an industry leader, but if you only sell to 30 or 40 clients and everybody decides to pull back on expenditures, you are going to feel the pinch. They are taking steps to make the business perform as best it can."

Still, the end of the tunnel may be in sight.

ABC-Naco said it expects rail industry spending to increase in 2001. That, coupled with its technology initiative, could bring an earnings increase next year. Meister agrees that railroads can postpone buying replacement parts for only so long, which means that pent-up demand could increase sales next year.

http://www.chron.com/cs/CDA/story.hts/business/energy/685930

-- Martin Thompson (mthom1927@aol.com), October 01, 2000

Answers

It figures. Parts suppliers to big energy-dependent industries would be hurting now.

-- Loner (loner@bigfoot.com), October 01, 2000.

It sure makes me wonder: if parts suppliers to railroads are bleeding, how about parts suppliers to airlines, trucking companies, and utilities? There should be a world of hurt there too.

-- Wayward (wayward@webtv.com), October 01, 2000.

More blood should be spilled by the fertilizer industry than anywhere else. Natural gas is a major cost component in their operations. That doesn't even touch upon oil.

-- Wellesley (wellesley@freeport.com), October 01, 2000.