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Baker International Expects Decline in '86

January 23, 1986|LESLIE BERKMAN | Times Staff Writer

Despite a 24% increase in earnings last year, Baker International Corp. officials told shareholders at their annual meeting Wednesday that the oil-services company's profits will decline in 1986.

Still, James D. Woods, president and chief operating officer of the Orange-based company, said Baker is "looking for bargain acquisitions of oil-service companies" in worse financial shape.

"Markets did not materialize as we expected in 1985 (and) intense competition will erode profits even further," Woods said.

In fact, for the first fiscal quarter, ended Dec. 31, Baker sustained an 8.3% decline in earnings, and officials predicted even lower earnings for its second fiscal quarter.

For the quarter, Baker had net income of $16.3 million, down from $17.75 million in the year-ago quarter. First-quarter revenues were $442.7 million, down 1.4% from $448.8 million in the first quarter of fiscal 1985.

Woods said the company's second-quarter income will be "substantially" lower than the first quarter. In last year's second quarter, Baker posted net income of $20.98 million. Woods said he expects a drop in profits for all of fiscal 1986.

In response to declining business, Woods said, Baker has laid off 200 employees in its Oil Drilling Group since October and this month is laying off an additional 300 workers in its Oil Tool Group. Both groups are based in Houston. Woods said there are no anticipated work-force reductions at the corporate headquarters in Orange.

Baker reduced its long-term debt by $95 million, to about $350 million, last year and plans to pare it back by an additional $40 million this year, said Baker's chief financial officer, Max L. Lukens.

Baker Chairman E.H. Clark Jr. said Baker's customers, such as oil drilling firms, are wary of a price war among the OPEC nations and are reducing their activity. Clark likened the competitive struggle within OPEC to a "shoot-out at the OK corral" and "the biggest poker game I have ever seen in my lifetime."

In fiscal 1985, ended Sept. 30, Baker had net income of $87.7 million, up from $70.6 million the year before, largely as a result of the company's efforts at consolidating facilities, increasing its market share and paying down debt to reduce interest costs.

"Quite likely for '85 we will be the only oil-service company with year-to-year gains in earnings," Lukens said.

Fall in Profits

But Baker officials acknowledged that this year similar efficiency measures will not be sufficient to prevent a fall in profits.

Also addressing the Baker shareholders was O.C. Jones, who said he represented Baptist organizations that own Baker stock. Jones commended Baker for agreeing to implement anti-apartheid policies at its plants in South Africa. He requested that the company threaten to withdraw entirely from South Africa if the government there does not end apartheid by May, 1987.

Clark said Baker officials are fighting apartheid by trying to persuade political representatives in South Africa and by helping to finance efforts of the South African chamber of commerce. He said that although the company would remove its operations from the country if shareholders demanded it, company officials would not recommend such action.

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