Analyst predicts grim times for Georgia Gulf

Georgia Gulf Corp., which this week reported a fourth-quarter loss of $198.7 million, is expected to continue to hemorrhage quarterly losses through September, an analyst said in a report issued Wednesday.

In his report, Zacks Investment Research analyst Paul Raman downgraded the company’s shares to “sell.” He cited the company’s debt, overcapacity for some of its products, the weak economy and energy costs as key reasons for his downgrade — which has a six-month price target on the shares of “zero.”

Atlanta-based Georgia Gulf has been battered in the last year by the weak economy because the chemical and plastic products it makes are used in the homebuilding industry.

Its shares have plunged nearly 86 percent in the last year. Georgia Gulf’s stock rose four cents Wednesday to close at 87 cents per share.

“Georgia Gulf recently overpaid for Royal Plastics, a supplier of housing products. The acquisition was entirely financed by debt, and the company is in danger of violating debt covenants. The product lines are suffering from over-capacity,” Raman wrote in his report. “As a result, we have a Sell rating with a target of $0.00.”

Georgia Gulf says it took several steps last year and is making additional moves this year to shore itself up.

This year, for example, the company announced it would reduce its global workforce of 5,250 by five percent; freeze its pension plan, saving $7 million in costs in 2009 alone; freeze all salaries; shorten the work-week for some employees and enact temporary layoffs at certain facilities.

“We entered 2009 as a much leaner company, we have a leaner cost structure and we have strong liquidity,” said Ashley Mendoza, a Georgia Gulf spokeswoman. “We’ll be focusing on adjusting our cost structure to match the market conditions we expect and improving the productivity of our assets and to adjusting our capital structure and reducing debt.”

The company, which reported having $90 million in cash and $143 million in available credit lines, had net debt of $1.3 billion as of Dec. 31. That debt stems largely from its $1.1 billion purchase of Canada-based Royal in 2006. At the time, Wall Street was skeptical the deal was worthwhile.

Georgia Gulf was banking that the acquisition would help buffer it from the cyclical swings of the chemical business and help it take advantage of growth in the construction sector, including home remodeling and repair.

But that was before the economy tanked.

Georgia Gulf said it reduced its debt by $83 million in 2008 and was in compliance with its debt obligations in the fourth quarter.

Mendoza said the company has been negotiating with creditors to change some of its debt covenants.

“Although there can be no assurances, we anticipate being able to procure the necessary amendments to the agreements based on initial discussions and the strength of the companies cash flow, our collateral and senior secured debt leverage ratio,” Mendoza said.