Five On The Upswing

Rarely does a single event cause corporate performance to nosedive. Nonetheless, lightning-rod issues capture public, media and market attention and become "the reason" for whatever ails a company. So why not reverse the polarity on that conductor and tout what is likely to be the driving force behind an upswing? IndustryWeek has identified the following companies as news-making candidates in 2003, and, although no sole action is transforming these companies, each has a predominant factor that is likely to contribute to an upward bounce. Eyeing The Enterprise: Apple Computer and Mac OS capturing corporate attention. A combination of Apple Computer Inc. innovation and market malaise could lead to Macs pushing some Windows-based PCs off of enterprise desktops. In the past year tech researchers have reported that many companies were looking at alternatives to their Windows operating system, and while open-source Linux is the first name on most lips, Macintosh, too, is catching IT managers' attention. In small companies with less of a Windows legacy, the enterprise shares are especially ripe for picking due to the acclaimed debut of the Jaguar operating system (Mac OS X v10.2). Jaguar is based on core UNIX technology and better able than past Macs to handle enterprise activities, and new Mac OS X servers offer a more liberal corporate licensing structure than Windows. While Windows holds some 90% of the enterprise market, any gain for Mac there could stabilize Apple's declining overall PC share. Apple holds about 4% of the U.S. PC market, and, with the exception of Dell Computer Corp. and Hewlett-Packard Co., is in the fray with other Windows-based brands. Apple has been aggressively marketing against its Windows competitors and capturing corporate users beyond its creative and education devotees. And CEO Steve Jobs has kept the Cupertino-based company poised to grab a share of the enterprise and position Mac as the home digital hub -- maintaining operational stability and cash flow while continuing to roll out computers, iPod music players and retail Apple Stores. Sowing Success: Deere digs in, cuts costs. In 2001, Moline, Ill.-based Deere & Co. was running anything but like a Deere, reporting a net loss of $64 million for the fiscal year, down from a $486 million profit in 2000. Like a farmer assessing a bad crop year, chairman and CEO Robert W. Lane tightened Deere's 166-year-old belt and broke out aggressive cost-cutting and asset-management measures. Lane declared a target of 20% return on equipment assets annually, began major and painful staff reductions through early retirements and plant and office consolidations, and separated out business chaff that could not earn more than its cost of capital (Homelite, acquired in 1994 in hopes of growing non-cyclical sales, reported large losses in 2000 and 2001, tarnished the green and yellow and was sold in late 2001.) Deere is now starting to reap its harvest: In the fourth quarter of fiscal year 2002, Deere posted a $68 million profit, and on the year net income rebounded to $319.2 million. Deere is still pursuing growth, but in a more conservative manner: introducing new products, increasing global sales (sales outside the U.S. and Canada account for about 25% of revenues), and leveraging existing strengths with broader solutions. For example, John Deere Landscapes was created to provide irrigation, plant material and related supplies to professional landscapers, opening up additional credit, cross-selling and service opportunities to this core customer base. Staging A Comeback: Widening cast of Mattel characters set to star. When Porky Pig blubbers "That's all folks," he isn't referring to the fortunes of Mattel Inc. The El Segundo, Calif., toy maker last year added licensing deals for Warner Bros. properties -- including Batman, Superman and many Looney Tunes characters -- strengthening a toy cast that already includes Harry Potter, Winnie the Pooh and Sesame Street's Elmo. While Mattel's properties have gotten decidedly larger and loonier, its management practices are simply sounder. It's overcome the cash-draining acquisition of The Learning Co. (since sold), reduced its debt burden and implemented tough cost-cutting measures under chairman and CEO Robert A. Eckert. The improved operations anchor the Mattel show, but it's still a roost ruled by recognizable characters and brand names, including Fischer-Price, Hot Wheels, Matchbox and Barbie. While entrenched in the traditional toy market, Mattel also is extending names overseas and positioning brands to leverage trends that show children gravitating to computer toys at earlier ages. For example, the highly interactive Barbie.com site draws millions of visitors per month, and Mattel opened Planet Hot Wheels, a game and community site that allows players to race 3D cars online in real-time. An access code packaged with Hot Wheels toys or requested of Planet Hot Wheels is the ticket for players to enter the virtual competition. More online brand transitions are just the ticket Mattel needs to attend a comeback performance in 2003. Courting Investors: Procter & Gamble's household brands again in favor. It's as if Procter & Gamble Co. (P&G) has been preparing for a wedding: something old (timeless brands such as Crest and Ivory), something relatively new (CEO A.G. Lafley, below), something borrowed (Clairol brands, acquired in November 2001), and something blue (the specks in Cascade detergent, of course). The groom? Wall Street, which has again fallen in love with P&G's consumer products lineup and is enamored with its new leadership and growth strategy. While once the analyst refrain was "Cisco not Crisco," referring to the jettisoned P&G brand, the chant now may be "Olay not Gateway." The 166-year-old Cincinnati firm is again the darling of financial markets, having gotten the cold shoulder at the turn of the century as analysts coveted Internet and high-tech stocks over hard-asset firms. It seems, though, that Lafley was preparing P&G for when the market came to its senses. He refocused P&G's product mix on big brands, especially health and beauty products, and net earnings from those units were up 34% and 22%, respectively, in fiscal year 2001/2002. During the fiscal year P&G share price rose 41%, sales 4% to $40.24 billion, and net earnings 49% to $4.35 billion (including restructuring charges) -- while capital spending dropped $807 million. Stellar performance in the first quarter of fiscal year 2002/2003 continues, with quarterly year-to-year net earnings up 33%, and many expecting a long honeymoon for P&G and Wall Street. Cleaning Up: Steris takes on bad guys. Steris Corp. has been beating germs since its founding in 1987, developing infection- and contamination-prevention products for health care, research, food and industrial customers. Now the Mentor, Ohio-based company is taking on a greater enemy and greater opportunities -- biological and chemical agents. Steris subsidiary Strategic Technology Enterprises Inc. is conducting R&D work with the U.S. Army to transfer Steris technology to fighting biological and chemical warfare agents. In 2001, President and CEO Les. C. Vinney implemented a "Blueprint for Growth": upgrade core competencies, increase market penetration, expand existing markets and adapt technologies to new markets. Although the Army project is certainly what Vinney had in mind, he could not have imagined the global concerns Steris and its products now address. Abetted by fears of deadly infections, in addition to increased health-care spending and expanding pharmaceutical R&D, Steris is looking at numerous growth markets and is positioned to meet them. Vinney, named CEO in July 2000, added operational savvy and discipline to Steris' entrepreneurial mix. New leadership has been trimming costs, improving asset utilization and integrating a spate of 1990s acquisitions that diluted corporate focus and pushed net income down by 59% in fiscal year 2000. Despite some capacity constraint, Steris revenues climbed 8% in FY 2002 and net income soared 57%. Through the second quarter of FY 2003, net income had more than doubled vs. the comparable period in 2002, and expectations are for at least a 60% earnings per share gain in FY 2003.