Comdisco Inc. executives delivered a gloomy message to Wall Street on Thursday, providing scant hope for a rebound in their once-solid business and increasing expectations for a sale of the company.
During a brief conference call, the Rosemont-based technology leasing, services and investment company announced a second-quarter net loss of $54 million, or 35 cents per share, down from earnings of $43 million, or 26 cents, a year ago.
Additionally, Comdisco said it has suspended dividend payments, ceased putting money into start-up companies and taken additional measures to cover bad investments.
The company’s stock, already far below its 52-week high of $33.87, sank another 60 cents, or 17 percent, to close Thursday at $2.85 per share.
Norm Blake, Comdisco’s chief executive, said a study under way to assess the viability of each of the company’s businesses has found significant problems.
“It has become apparent during this review that the growth and profitability of our core businesses have been severely challenged,” he said.
With nearly $5.9 billion in debt and without access to long-term financing, Comdisco is expected to unload assets to raise cash. Among possible buyers are IBM and General Electric, Wall Street sources said.
“It’s fairly obvious that they’re moving down the track to selling at least part of the company,” said Mark Jordan, vice president of A.G. Edwards in St. Louis.
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Last month, Comdisco announced it has retained Goldman, Sachs & Co. and McKinsey & Co. to explore its options. Bringing in investment bankers is a clear sign that the company is preparing for a sale, though Blake did not address the issue Thursday.
“Given the sensitivity of these matters, it would not be appropriate at this time to disclose the process or timing of these actions,” Blake said.
For the second quarter, which ended March 31, Comdisco posted a loss from continuing operations of $8 million, or 5 cents, compared with income of $71 million, or 44 cents, a year ago. Revenue of $940 million was down from $1 billion in the prior year.
The company took several actions to account for bad investments.
Comdisco’s venture unit wrote off $100 million in unpaid loans and set aside an additional $206 million for future bad debts. The company estimated its assets in the venture unit–including direct investments, equipment leasing and lines of credit–were worth $1.3 billion as of the end of March.
Additionally, Comdisco took a $30 million pretax charge to account for the decreasing value of telecommunications assets from its failed high-speed Internet service, Prism Communications Inc., and a $38 million pretax charge for the shutdown of its network consulting unit, which it shut in January.
John Vosicky, Comdisco’s chief financial officer, said the company’s venture unit stopped investing in new companies in January, but that it continues to honor current obligations.
During the past several years, Comdisco has established lines of credit and leased equipment to hundreds of start-up firms. Vosicky said the company paid out $163 million to these firms during the second quarter.
Several venture capitalists and others have said Comdisco has stopped honoring some of these commitments, particularly lines of credit, though the company maintains it has made all necessary payments.
These loan agreements often include a clause that allows the lender to exit the arrangement if significant changes occur, which Comdisco says is the case given the dot-com crash and broader economic slowdown.
For the six months, the company reported earnings from continuing operations of $82 million, or 53 cents a share, down from $131 million, or 80 cents a share. Overall, the company had net earnings of $34 million, 22 cents a share, compared with net earnings of $84 million, or 52 cents. Revenue for the six months was $1.84 billion, down from $1.87 billion.
– Aon Corp., hurt by restructuring charges as well as a big investing loss, reported an 84 percent drop in first-quarter earnings on flat revenue.
The Chicago-based insurance brokerage said net income in the latest quarter was $19 million, or 7 cents a diluted share, down from the year-earlier period’s $116 million, or 44 cents a share. Revenue was unchanged at $1.81 billion.
Pretax profits rose by 9 percent at Aon’s operating units: earnings firmed by 9 percent at the company’s insurance brokerage business, to $196 million; by 2 percent at its insurance underwriting operation, to $68 million; and by 32 percent at its consulting business, to $25 million.
But as the company warned earlier, net profits in the latest period were hammered by $56 million in losses to mark down the value of its portfolio of limited-partnership investments. As a result, overall investment income for Aon– which totaled $137 million a year ago–was only $22 million in the latest period.
Aon’s net also suffered, as expected, from $72 million in charges associated with a restructuring plan the company unveiled last November.
Although Aon’s earnings exclusive of special items matched Wall Street’s expectations, the company’s shares fell $1.13, or more than 3 percent, Thursday, to close at $32.44.
– CNA Financial Corp. said first-quarter operating earnings dipped 1 percent, but net income more than doubled because of a surge in investment income.
The Chicago-based insurance concern, which is a leading provider of property-casualty coverage for business customers, had net income of $295 million, or $1.61 a share, up from the year-earlier quarter’s $141 million, or 76 cents a share.
CNA Financial realized a whopping $237 million in investment gains, up from just $21 million in such gains a year ago. That was partially offset by an accounting change that reduced net income by $61 million in the latest quarter.
Operating income, which excludes investment results and the accounting charge, was $119 million, or 65 cents a share, off slightly from the year-earlier $120 million, or 64 cents on more shares outstanding. But CNA noted that the year-ago quarter was helped by $24 million in non-recurring commission related to an asset sale; without that item, operating income was up 24 percent, CNA said.
CNA’s operating results significantly topped analysts’ consensus forecast of 54 cents a share. Shares of the insurance holding company–which is 87 percent-owned by New York-based Loews Corp.–rose 27 cents, to $35.52.Charges push