After spending months slimming down its far-flung, diversified operations and pumping life into its ailing retail unit, Los Angeles conglomerate Pacific Enterprises ran into a major challenge close to home.
A fiery natural gas explosion tore the roof from a Lakewood home in September, sending a mother and her two children to a hospital burn center in critical condition. Police and gas utility investigators are determining the cause of the explosion and to what extent the Southern California Gas Co.--Pacific Enterprise's core business and most profitable unit--is responsible.
The incident, which nearly killed 34-year-old Debra J. Bell and her two children, Charles and Kizzie, gives SoCal Gas a public relations black eye and sets it up for possible legal liability, some analysts contend, and it adds to mounting headaches at debt-laden Pacific Enterprises.
Before the explosion, the parent company already had its hands full on several fronts: cost-cutting at the gas company, shedding unprofitable assets at its oil and gas exploration unit and--in its primary project--replacing top management and bolstering sales in its Thrifty Corp. retail business.
As Pacific Enterprises toils away at revamping the company, its stock price continues to fall. On Friday, its share price dropped 50 cents on the New York Stock Exchange to close at $25.25, just above its 1991 low of $24.25. The stock had been as high as $43.375 earlier in the year.
The company's third-quarter results are due Tuesday, and analyst John Parry, with utilities research firm John S. Herold Inc. of Greenwich, Conn., said the gas company's earnings should be weak, as is traditional for the third quarter when demand is down. "The retail side is anybody's guess," he said.
In May, SoCal Gas announced a belt-tightening campaign to remain competitive--a prospect that is getting increasingly difficult. Electric appliances are becoming more common, and a new gas pipeline begins operation next year, allowing some of the gas utility's business customers to bypass SoCal Gas completely.
SoCal Gas said in October that it will begin offering and charging an undetermined fee for some services that it did not perform in the past, such as connecting appliances. In May, the gas company said it would close 12 branch payment offices, mainly in suburban areas, outraging many community activists.
SoCal Gas and Pacific Enterprises executives insist that the gas utility budget cuts are not in response to the parent company's financial woes. But some consumer groups are skeptical, saying gas company cost-saving programs could be setting up a windfall for Pacific Enterprises.
Auditors with the California Public Utilities Commission are investigating the relationship between Pacific Enterprises' policies and the gas company's finances. The CPUC will release its findings in late November, said Frank Crua, a commission senior utilities engineer who is coordinating the audit.
At Dallas-based Pacific Enterprises Oil Co., company officials in August announced a curb on drilling at some holdings in Wyoming, Texas, Oklahoma, Louisiana and Alabama. It also slashed its 1992 energy exploration and production budget to $90 million from $200 million.
An undetermined number of job cuts are also on the horizon. Shedding unprofitable assets to reduce debt, the oil company announced in September the sale of its interest in oil and gas reserves in the Dutch North Sea.
Oil and gas aside, the parent company's most serious challenge lies in its long-running turn-around effort at Thrifty Drug and Discount Stores, the weak link of its more than 1,000-store Thrifty chain.
Thrifty, which Pacific Enterprises brass had hoped would help stabilize the parent company's profits, posted a $64-million loss last year, the first since its 1986 takeover. The corporation is plagued by weak sales in its 577 Thrifty Drug stores in California. Thrifty took a $100-million charge in 1990 to unload weak drug stores, and Thrifty executives do not predict profits until some time late next year.
Meanwhile, the surprise October resignation of Thrifty Drug President Eve Rich capped months of bloodletting in the ranks of top Thrifty management. Rich, a veteran retail executive, was hired to help give direction to Thrifty's turnaround efforts.
Analysts and Thrifty executives said the drug store's problems include a murky idea of who Thrifty's customers are and tougher competition. Some Thrifty employees criticize the drug store chain for dirty stores with poor service. And in the background lurks a recession that has stuck with retailers like a bad cold.
But it wasn't always this way. In the mid-1980s, Pacific Enterprises wanted to enter a recession-proof business that would expand its market presence. So it ventured from the highly regulated public utility business to take a walk on the wild side of competitive, unpredictable retailing.