CEO Departures at Federal-Mogul and ICG Follow Profit Warnings - TheStreet

CEO Departures at Federal-Mogul and ICG Follow Profit Warnings

Wall Street was not satisfied with the top-level resignations, as both companies were hammered in Tuesday trading.
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Wall Street enjoys drawing distinctions between the so-called New Economy companies, like the ones that provide cost-saving Web "solutions," and the Old Economy stalwarts, those sometimes stodgy, yet usually profitable, institutions.

Occasionally, the two seemingly disparate worlds collide. Take

ICG Communications

(ICGX)

, a telecommunications service provider on the

Nasdaq

, and

Federal-Mogul

(FMO) - Get Report

, an auto-parts maker listed on the

New York Stock Exchange

, two companies that had little in common until Tuesday.

Forced to make disappointing earnings forecasts, both companies abruptly said their top executives would step down. Federal-Mogul, warning of a lower-than-anticipated third quarter profit, said that Richard Snell, its 59-year-old chairman and chief executive, would resign right away.

Meanwhile, ICG, an Englewood, Colo.-based telecommunications carrier, said Carl Vogel, the chief executive who took the position less than a month ago, also had resigned in an announcement that followed a similar warning on Monday about its earnings.

But Wall Street was not satisfied with the sacrifices and pummeled the companies' stocks. Federal-Mogul's shares fell $1.25, or 14%, to close Tuesday regular trading at $8, well below its 52-week high of $29.88 reached in early October. And shares of ICG, which plunged 58% on Monday, fell another 78 cents, or 47%, to 88 cents on Tuesday. ICG's stock had traded as high as $39.25 in late March.

Many of the companies that inhabit the volatile realm known as the New Economy have languished lately, despite repeated promises of a profitable future. But amid a slowing economy and a flurry of profit warnings, Wall Street has been punishing more traditional corporate players as well.

Shares of

McDonald's

(MCD) - Get Report

,

Colgate-Palmolive

(CL) - Get Report

and

Gillette

(G) - Get Report

all fell recently after the companies projected lower-than-expected earnings, at least partially blaming a weak euro for their financial woes. For companies that do business across the Atlantic, European earnings converted from euros to dollars are lackluster.

While Federal-Mogul, a Southfield, Mich.-based company that traces its roots back to 1899, and ICG, a relatively modern telecommunications company, occupy unrelated niches, they are both victims of expansion efforts that came too quickly and at too great a cost, analysts said.

While Federal-Mogul cited weakened European currencies in explaining its financial status, the company has struggled mostly from internal matters related to incorporating recent acquisitions, analysts said. Eric Goldstein, an analyst with

Bear Stearns

, said the company paid too much to make several deals, a sentiment that seems even more certain in retrospect. Goldstein, who rates the stock a neutral, said his firm has done underwriting for the company.

Federal-Mogul had embarked on a buying binge, acquiring

T&N

, a British gasket and spark plug maker, for nearly $3 billion,

Fel-Pro

, another gasket maker, for $720 million, and

Cooper Automotive's

replacement auto-parts unit for $1.9 billion in cash. The company made all of those deals in 1998.

The company encountered difficulty integrating those acquisitions and also inherited a major problem after acquiring T&N and taking on the claims of former employees who were exposed to products containing asbestos.

Federal-Mogul said in a statement Tuesday that it expected asbestos settlement payments to exceed $310 million for the year, leading another analyst, Kenneth Blaschke of

Deutsche Banc Alex Brown

, to question whether the company, in pursuit of growth, did enough due diligence. Blaschke said he rates the stock a neutral, adding that his firm has not done any underwriting for Federal-Mogul.

Then there is ICG, the telecommunications carrier that about a year ago began an aggressive campaign to transform its business from offering modestly performing local and voice services to providing Internet communications. The move to morph its business platform and tackle new technology had a cost that culminated with the bad news this week, said David Barden, an analyst at

J.P. Morgan

.

"Like other companies that have struggled, it had to deliver a lot of results, very quickly," said Barden, who rates ICG stock a market perform. His firm has not done any underwriting for ICG. "Where the company is now is a function of trying to grow rapidly out of a problem."

If anything, the announcements by Federal-Mogul and ICG underscore the fact that no company on Wall Street is immune. "New Economy, Old Economy," Goldstein of Bear Stearns said, "it doesn't matter if you overpay for your assets."