The Daily Dow
Thursday, September 25, 1997
by Debora Tidwell (TMF Debit)
ALEXANDRIA, VA (Sept. 25, 1997) -- Today I have a bad attitude. I probably need to go to Disney World for awhile. It happens, no biggie, but it has left me relatively uninspired as far as ideas for this report. So, what the heck, let's talk about UNION CARBIDE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UK)") else Response.Write("(NYSE: UK)") end if %>, which blasted its way into the , the BTD 5, and the Foolish Four the other day. This happened due to a rather interesting series of events that began with the company announcing last week that it would miss earnings estimates for the third quarter by quite a bit. The mean estimate for Union Carbide was $1.34 per share and the company now expects earnings to come in only "moderately above" the $1.08 per share it posted last year in Q3. The stock fell more than $4 per share on that news and has since fallen another dollar and change to close today at $47 3/8.
That news was followed yesterday by the announcement that the board of directors increased the quarterly dividend 20% and adopted a plan that commits management to earning at least $4 per share in 1999 and 2000 (anticipated to be the next cyclical trough for the industry). Union Carbide's chairman and CEO William Joyce has agreed to forfeit a full-year's base salary if the company doesn't meet that target and 16 other senior executives at Union Carbide will forfeit 65% of a year's base salary. If it meets or surpasses the target, the management receives their base salaries plus incentive compensation.
The compensation package for Union Carbide's executives has four components: base salary, which reflects the executive's pay grade and level of responsibility and permits income predictability; profit sharing, typically paid in cash (also ESOP stock beginning with 1996), which places a small percentage of base pay at risk and provides for upside potential; variable compensation, typically paid in cash, which reflects relative corporate, business unit, and individual performance as well as the individual's grade level; and long-term incentives, consisting chiefly of stock options (which create value only if the price of Union Carbide's shares appreciates) and restricted stock (which encourages share ownership and long-term retention).
Since base salary is only one of the compensation components for Union Carbide executives and is the only component forfeited by the commitment, let's take a look at how this shakes out for Dr. Joyce. In 1996 his base salary was $737,500. His annual variable compensation for 1996 (including performance incentive plan payments) was $1,050,000. Other annual compensation for Dr. Joyce, which included profit sharing and ESOP profit sharing, totaled $95,192 in 1996. He received 9,424 shares of restricted stock that was worth $385,226 on December 31st, reflecting reinvested dividends and the closing share price on that day. He was also granted stock options for 130,000 shares. He had $166,538 of other compensation, which largely includes benefits he gets like life insurance premiums, matching contributions for ESOP, etc. So, there, now you can at least weigh what it means for Dr. Joyce to put his base salary on the line. Remember too, his promise is for 1999 and 2000, not this year.
As far as the earnings shortfall, Union Carbide has two main divisions -- Specialties & Intermediates, accounting for around 70% of revenues and 82% of operating profits, and Basic Chemicals & Polymers. The Basic Chemicals & Polymers segment is seeing higher-than-expected raw material costs and weak pricing for polyethylene and polypropylene resins that are used to make the most widely used plastic and the fastest-growing plastic, respectively. The Specialties & Intermediates segment is seeing currency impact from the stronger dollar and lower margins due to higher energy and feedstock costs. It is also experiencing higher ethylene oxide costs. Ethylene oxide is a key raw material for many products in this segment, including polyester fiber, film, and resin and automotive antifreeze.
I have received a lot of mail asking about the current BTD lists, so I wanted to take a minute at the end of today's write-up to answer. There has been a lot of volatility in the Beat the Dow list over the past couple weeks and this has understandably caused some confusion because we don't update our BTD lists every day. As of today, the 10 stocks with the highest yields in the Dow 30 (in descending order) are:
Philip Morris <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MO)") else Response.Write("(NYSE: MO)") end if %>
J.P. Morgan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JPM)") else Response.Write("(NYSE: JPM)") end if %>
AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %>
Eastman Kodak <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EK)") else Response.Write("(NYSE: EK)") end if %>
General Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GM)") else Response.Write("(NYSE: GM)") end if %>
Chevron <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CHV)") else Response.Write("(NYSE: CHV)") end if %>
Exxon <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XON)") else Response.Write("(NYSE: XON)") end if %>
3M <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MMM)") else Response.Write("(NYSE: MMM)") end if %>
DuPont <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DD)") else Response.Write("(NYSE: DD)") end if %>
Union Carbide <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UK)") else Response.Write("(NYSE: UK)") end if %>
Using the share prices as of today's market close, the BTD 5 are:
Philip Morris
AT&T
Union Carbide
Eastman Kodak
DuPont
General Motors and Exxon are within $2 a share of Eastman Kodak and DuPont, so they may switch in and out of the list from time to time.
Tomorrow, Jerry Thomas (TMF Cheeze) will be back to finish off the Sheardless Fortnight.
(c) Copyright 1997, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool. ________________________________
Stock Change Last -------------------- T - 3/16 44.88 GM - 7/8 65.13 CHV -1 7/8 82.69 MMM + 13/16 87.81
Day Month Year
Day Month Year
FOOL-4 -0.75% 8.30% 14.70%
DJIA -1.53% 2.96% 21.71%
S&P 500 -1.47% 4.27% 26.62%
NASDAQ -1.09% 5.77% 30.04%
Rec'd # Security In At Now Change
1/2/97 153 Chevron 65.00 82.69 27.21%
1/2/97 179 Gen. Motor 55.75 65.13 16.82%
1/2/97 479 AT&T 41.75 44.88 7.49%
1/2/97 120 3M 83.00 87.81 5.80%
Rec'd # Security In At Value Change
1/2/97 153 Chevron 9945.00 12651.19 $2706.19
1/2/97 179 Gen. Motor 9979.25 11657.38 $1678.13
1/2/97 479 AT&T 19998.25 21495.13 $1496.88
1/2/97 120 3M 9960.00 10537.50 $577.50
CASH $1009.44
TOTAL $57350.63