Bausch & Lomb
announced Wednesday that it would cut its work force by about 7%, eliminating 850 jobs worldwide, and consolidate its contact-lens manufacturing operation in a move aimed at reducing its costs.
The restructuring will result in a pretax charge of $56 million, or 61 cents a share, against the company's fourth-quarter earnings to cover employee severance payments and capital equipment write-offs.
The eye-care company said it expected the cost savings to add $10 million to its operating earnings in 2000 and that it anticipated cutting its annual expenses by $30 million beginning in 2001.
Most of the job cuts will take place over the next 12 months in Rochester, N.Y., where Bausch & Lomb is based.
The news was well received by investors, who have watched the stock slump 34% since early May. Bausch & Lomb's shares jumped 5 11/16, or 10%, to 60 1/2 by midday Wednesday. (The stock settled up 4 3/16, or 8%, to 59.)
To boost its share price, the company said it will buy back 5 million of its 59 million outstanding shares. "They don't want to buy back too much because they are definitely looking at other acquisitions," said
analyst Charles Olsziewski, who rates the stock attractive. His firm has not underwritten any offering by the company.
"I think there are some acquisition possibilities in the contact lens business Someone like
would work," Olsziewski adds. Cooper Companies is a small-cap manufacturer of contact lenses.
The company also said it was considering further changes in its contact lens product line and manufacturing processes that could lead to an additional $15 million in pretax charges in 2000.
The charges come at the end of a year in which average earnings estimates were putting the company's performance at meeting last year's $2.30 a share. The consensus for the fourth quarter is 87 cents.
"The analyst community will see earnings forecasts increase from these cutbacks," said Suey Wong, an analyst at
Robert Baird & Co.
who rates the stock a near-term market perform. Wong's firm has not underwritten any equity offering from Bausch & Lomb.
With new advances in eye surgery, myopia has become a curable condition and contact lenses a cheaper and more cumbersome alternative. As a result, Bausch & Lomb wants to remake itself as a technology-based company for eye care only.
The contact lens-maker shed a number of nonstrategic businesses including
hearing aids and
Charles River Laboratories
, an animal laboratory. Meanwhile it has been playing catch-up with its new, nimble rivals.
The outlook for Bausch & Lomb changed significantly when a laser cut into its bottom line.
, the market leader in laser eye surgery, has been on a tear with its new procedure approved by the
Food and Drug Administration
. Visx makes and sells the equipment for a 30-minute procedure that corrects the vision of the near- and far-sighted. The company receives a $250 royalty fee per patient. The total number of laser vision correction procedures grew from 200,000 in 1997 to 400,000 last year. Analysts predict that number will bloom to 800,000 in 1999 and 1.2 million next year.
"Clearly they have a lot of ground to make up because Visx has a strong customer base," Olsziewski said.
Last year, Visx's stock rose 295%; this year it is up 255%. In midday trading, the stock was down 1 13/16, or 2%, to 75 7/8. (Visx settled up 1 5/8, or 2%, to 79 1/4.)