INLAND ROLLS OUT A SHEET OF DISAPPOINTMENT
In an industry not known for its brilliant strategic planning, Inland Steel Industries Inc. has always seemed to shine. When other steelmakers were flailing about during the early 1980s, Inland committed itself to a $1.7 billion capital-spending spree to install the world's latest steelmaking gadgetry. The crescendo came when Inland Chairman Frank W. Luerssen announced plans in 1987 with Japan's Nippon Steel Corp. to build a finishing plant that could turn out nearly perfect sheet steel.
But instead of leading the pack, Inland is now suffering along with the rest of the industry. Operating glitches have left the year-old, $525 million finishing plant in New Carlisle, Ind., known as I/NTek, behind schedule. Meanwhile, equipment snafus at its sprawling steelmaking facility in Northern Indiana cost Inland dearly. And expansion of its wholesale metal distribution business has also been a disappointment. Taken together, these miscues are now roiling the company. "We tried to do too much too fast," concedes Robert J. Darnall, president of Inland.
HEAVY TOLL. The upshot: Last year, Inland lost $20.6 million on a 7% sales dip to $3.9 billion. Prospects are even grimmer this year, with Inland's key consumer-product markets--autos and appliances--in a blue funk. Inland lost a surprisingly steep $40 million in the first quarter. It faces a potential full-year loss of about $130 million on $3.5 billion in sales, figures UBS Securities Inc.
Of course, the recession is being felt throughout the steel industry. Virtually every major steelmaker is reporting heavy first-quarter losses. And, to be sure, Inland's reputation for turning out quality steel remains intact. Yet the company is paying a steep price for Luerssen's decision to focus on premium flat-rolled and bar steel, used in such products as cars, refrigerators, and office furniture.
With the auto and appliance businesses on the ropes, Inland's key customers have pressed for rock-bottom prices--squeezing margins on its premium steel. Nor have competitors relinquished the high end to Inland. The company figured its technological edge would allow it to swipe share from competitors in slow-growing steel markets. But rivals such as USX, LTV, Armco, and National have also spent billions of dollars to sharpen the quality of their sheet steel.
Now, Inland's future depends on getting the bugs out of its new I/N Tek finishing plant. When the mill is humming, it can produce rolls or coils of steel at half the cost of traditional operations. Because the mill performs five separate operations continuously under one roof, Inland says it can transform a semifinished coil into sheets with nearly perfect flatness and smoothness in less than an hour vs. the 12 days it takes some competitors.
Since the plant started up a year ago, though, I/N Tek has lagged behind schedule. First, Inland miscalculated by about a month the time necessary to gear up the plant's computer system, which controls all the hardware that measures steel uniformity and quality. I/N Tek's computer and core steel-finishing equipment now run smoothly, Darnall insists. But the plant is still struggling with the equipment that transports and wraps finished coils. Partly because of anemic steel demand, I/N Tek has been running at only 50% of capacity--not the 75% level it had hoped for by now. Making matters worse, the quality of steel produced at its one and only steel-making facility, the Indiana Harbor Works, suffered when Inland's steel casting, or forming, equipment was knocked out by a fire and glitches related to some plant improvements. As a result, some smaller customers had to shut down their own operations when Inland's steel deliveriesfell behind. "It was a terr-ible problem," Darnalladmits.
Unfortunately, steelmaking isn't the only thing causing consternation at Inland. Beginning in 1988, the company launched an aggressive expansion of its steel-service business, which warehouses and distributes wholesale steel products. The unit accounts for about 50% of Inland's total revenues and is supposed to offset downturns in the company's steelmaking arm. It hasn't. The division's operating profits fell a scary 70%, to $18 million, last year. To get things back on track throughout the service-center business, Inland has tossed out many of the unit's top managers. It has also reorganized the business into four regional offices and moved the unit's headquarters to Atlanta from Chicago.
JANGLED NERVES. Luerssen, 63, is clearly on the hot seat. But the guy feeling much more of the heat is Darnall. He is regarded as heir apparent to Luerssen, who is scheduled to retire in 16 months. In early April, Darnall, 53, took direct control of the steel operations, after replacing Inland's top steel executive--the third to depart in six years.
There are plenty of jangled nerves among Inland investors, too. Its share price has dropped 36% during the past year, to about 20--far below the 10% drop in the Standard & Poor's steel group over the same period. Luerssen also announced that 1991 capital spending would be slashed by 29%, to roughly $250 million.
If Inland can work through its myriad troubles, it may finally begin to shine after the economy--and steel orders--rebound. But for the near future, it seems Inland's outlook is decidedly run-of-the-mill.Michael Schroeder in Chicago