Crown Corporation Company Analysis

Crown Corporation

Company Description

A series of acquisitions and divestitures during the 1960s had totally transformed Crown Corporation from a mining company into a manufacturer of superalloy castings for aircrafts and industrial uses and aluminum products for the buildings, packaging, and aircraft industries. Sales were evenly divided between castings and aluminum products.

The techniques and know how involved in castings operations were important and the commercial success of such an operation was in large measure dependent upon achieving a low ratio of rejects. Crown's constant emphasis on quality and technical excellence had established a high level of confidence among its customers.

The other half of Crown's sales comprised aluminum products, including a broad product line for the building and construction industry. Major efforts had been made to increase the company's captive source of primary aluminum ingot for consumption by its fabricating operations. To assure a steady and economical source, Crown had become a producer of primary aluminum in 1966 through participation with American Metal Climax, Inc. in a project known as Intalco. Crown's share of Intalco output was 130 million pounds, roughly 81% of its total need.

In 1967 the decision was made to build a second aluminum ingot plant, named Eastalco, at a cost of $50 million. Eastalco was expected to start operation in mid-1970, providing Crown with additional primary aluminum capacity of 85 million pounds a year and increased net income of $3-4 million. A planned addition of 85 million pounds in 1972 would raise Eastaco's capacity to 170 million pounds and would meet the company's objective to be a fully integrate producer.

Company Performance

Crown's sales had risen sharply from $60 million in 1958 to $230 million in 1968 on the strength of 23 acquisitions, strong internal growth, and a firming of aluminum prices. The company's earnings had been largely more erratic because of its instability in its aluminum business. The great growth potential of aluminum had caused many businesses to enter in the industry and thus causing a overcapacity of production. Eventually because of this increased capacity the prices of aluminum prices went down considerably. Demand supply conditions improved considerably in the early 1960s and with the improvement came sharply higher earnings for Crown and other aluminum producers. The improved industry price structure in the late 1960s encouraged aluminum producers to move forward to meet the demand and the opportunities of the 1970s.

Crown's Expected Growth

* Sales would increase by 6-8%.

* Crown's growth would necessitate heavy spending on