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Articles - Publication Date 5.1.2002
ITT's Value Champion
CEO Lou Giuliano is moving on several fronts to make ITT Industries into what he calls
By John S. McClenahen
Although it carries the historic ITT ticker symbol on The New York Stock Exchange, the company Louis J. Giuliano heads is not the company that you think you know.
This ITT is not the owner of Sheraton hotels. They were spun off in a 1995 corporate redistribution. Nor is it the ITT of the 1960s and 1970s, a rogue multinational that, among other things, is alleged to have helped destabilize the socialist government of Chilean President Salvadore Allende.
ITT has changed since then. A lot. And with value as his watchword, Giuliano is driving change apace at today's ITT. Value is an active adjective, a goal, an operating principle and a performance measure at the six-year-old, $4.7 billion, 42,000-employee, White Plains, N.Y.-based diversified engineering and manufacturing company. And one of the shiniest links in Giuliano's "value" chain at ITT Industries Inc., as the company is formally known, is a different kind of change agent dubbed Value-Based Six Sigma.
"We want to grow both revenues and earnings. But we also want to create value -- and that's an important part of the equation," stresses Giuliano, the corporation's chairman, president and CEO. Foremost, from Giuliano's strategic perspective, is the value of business diversity. ITT Industries has 31 business units, collected into four management companies -- fluid technology, defense electronics and services, motion and flow control, and electronics components. "We think that we can create shareholder value over time -- steady, reliable shareholder value growth over time -- with the mix of businesses we have," says Giuliano. Specifically, he's betting that a combination of long-cycle businesses, such as defense electronics and pumps, and such short-cycle businesses as electronic connectors better protects ITT Industries against individual market weaknesses.
Giuliano believes also in using acquisitions to create economic and shareholder value, and he pursues acquisitions that promise to enhance or complement existing businesses while quickly adding to earnings. Two cases in point: the acquisition of mobile-phone keypad maker STX Pte. Ltd. and the acquisition of the space and defense communications business of Stanford Communications -- both announced in the third quarter of 1999. Each helped ITT Industries gain competitive advantage and capture business. "We don't want to be just a deal machine," stresses Giuliano. "We're an operating company."
Value -- economic value -- comes into play as well when Giuliano decides which businesses to sell. The most notable examples are the 1998 sales of ITT Industries' automotive electrical systems business to France's Valeo SA and the brake and chassis business to Germany's Continental AG. The two businesses accounted for about $4 billion in sales. They were growing. They were market leaders. They had good margins and technology. But they weren't earning their cost of invested capital.
By some very basic financial measures, the five-year value strategy Giuliano and his senior management team launched in 1998 appears to be paying off -- literally. Earnings per share advanced to $3.09 in 2001 from $1.25 in 1998, a compound annual growth rate of 35%. ITT Industries' operating margin in 2001 was 11.7%, up 300 basis points from 1998's 8.7%. And free cash flow, a basic measure of money coming into and going out of the company, was $303 million in 2001, a dramatic $327 million improvement from 1998's negative $24 million. True, total revenues slipped $153 million to $4.676 billion from $4.829 billion between 2000 and 2001 as demand fell for the company's electronics components. But given the U.S. recession and the impact of Sept. 11, that's still a respectable top line.
Wall Street clearly likes what Giuliano, who previously was ITT Industries' president and COO, is doing. The consensus recommendation of securities analysts as compiled by First Call/Thomson Financial remains a "buy."
Credit Giuliano for results. And cr
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"We knew from past experience that to really make continuous improvement work, the people charged with implementing it had to have the leadership to make teams effective."
--Lou Giuliano, CEO, ITT Industries
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