IW 50 Best U.S. Manufacturers -- Cream Of The Crops

Comparing apples and oranges isn't easy, but it can be done. Indeed, IW's Best U.S. Manufacturers cover myriad industries.

Looking at IndustryWeek's third annual list of the 50 Best U.S. Manufacturers, it is evident that this is a diverse group of manufacturers that truly have mastered their markets.

To be sure, companies such as Dell Inc. and Lexmark International Inc. share the stage with Procter & Gamble and Clorox Co. And Exxon Mobil Corp., Chevron Corp. and Sunoco Inc. share the list with Hormel Foods Corp., Wm. Wrigley Jr. Co. and Anheuser-Busch Cos. Inc.

Many readers ask IndustryWeek how we can ensure that the playing field is level when dealing with so many different industries and so many different supply chains. How can we compare petroleum and coal products makers with food producers? The answer: IndustryWeek considers financial measures that pertain to operational efficiency and market success. We selected this year's top performers by comparing financial performance during the past three years (2001 to 2004) in revenue growth, return on equity (ROE) and profit margin.

View The IW 50

See a complete list of the IW 50.
In addition to the market metrics, manufacturing specific metrics were chosen to address the capital/asset intensive nature of manufacturing. These include asset turnover, inventory turnover and return on assets (ROA).

The six variables are weighted, with the most recent year contributing 50% of the calculation in each area. The IW 50 is culled from the IW U.S. 500 list, the largest publicly traded manufacturing companies in the United States.

With that said, further examining the 50 in terms of profit margin, revenue growth, ROE and ROA for 2004, there are 15 companies representing 11 industries that enjoyed double-digit performance in each (see the chart Double-Digit Performance).

Coach Inc., while appearing at No. 422 on the IW 500 list pulling in $1.3 billion in revenue, performed extremely well as the only leather products manufacturer on both lists thanks in part to its growth strategy in Japan.

"We believe that through expansion and increased productivity, we can grow at least 20% annually in constant currency, doubling our sales base over the next four years and taking our market share to our goal of 15% from about 8% today," said Lew Frankfort, Chairman and CEO of Coach Inc., in a company announcement.

Indeed, the New York-based maker of high-end leather handbags and accessories posted 19.8% profit margin, 38.6% revenue growth, 61.3% ROE and 42.4% ROA. Not bad for a product that was first inspired by a baseball glove's distinctive markings after years of use.

Another company holding its own against its competitors is first-timer to the list San Diego-based Qualcomm Inc. (No.170). The communications equipment maker, which posted $4.8 billion in revenue, had a profit margin of 35.2%, 22.9% revenue growth, 22.6% ROE and a ROA of 19.5%.

The company, which was founded 20 years ago from a meeting of the minds in Chairman of the Board and former CEO Irwin Jacobs' den, is the only communications equipment maker that appears on the IW 50 list.

Representing the printing and publishing industry by stellar double-digit performance are: new-to-the-list San Rafael, Calif.-based Autodesk Inc., which posted 18% profit margin, 29.6% revenue growth, 35.6% ROE and 21.8% ROA; and Redwood City, Calif.-based Electronic Arts Inc., which posted 19.5% profit margin, 19.1% revenue growth, 32.3% ROE and 24.5% ROA.

Newfield Exploration Co., a Houston-based petroleum and coal products company founded in 1989 and went public in 1993, earned $1.4 billion in revenue, posted 23.1% profit margin, 33.0% revenue growth, 22.8% ROE and 11.4% ROA.

Read the methodology used to choose the IW 50 Best.

The company, which debuted on the IW 50 this year, states that by year-end 2004 about 70% of its proved reserves were located onshore U.S. It also notes that its newest onshore focus area is the Rocky Mountains.

Another newcomer to the list is Gillette Co., which posted $10.5 billion in revenues. No wonder Cincinnati-based Procter & Gamble, which posted $51.4 billion in revenues, has a proposed acquisition of the Boston-based grooming-products company in the works.

As for other newcomers to the list (there are 17 total), seven fall under the Petroleum & Coal Products industry and account for $290.3 billion (nearly 27%) of the $1.1 trillion in revenue of all 50 companies on the list.

And what about the companies that didn't make the grade this year?

For the 17 companies that fell off the IW 50, it's not necessarily because they had terrible performance. The lesson here is that these companies are stacked against the best of the best, and losing ground on the IW 50 list still puts many of these companies well ahead of the competition.

For example, Avery Dennison Corp., the Pasadena, Calif.-based office and school supply manufacturer, had great performance in 2004. But according to a statement released by the company, raw materials costs posed a challenge.

"Our outstanding results this quarter [fourth quarter 2004], which include record quarterly earnings and strong sales growth in every major geographic region in which we operate, demonstrate the success of our intense focus on improving profitability and expanding top-line sales," said Philip M. Neal, chairman and CEO of Avery Dennison. "We faced several challenges in 2004, including a significant rise in raw material costs," yet we achieved our goals for sales and earnings.

The company has implemented a number of immediate actions to sharply reduce expenses, Neal reports.

These results prove that one year you can be a shining apple, and the next year you may need to re-evaluate the business. The solid foundation that these companies are built on has onlookers awaiting the next move of the IW 50 companies.

And if the next move is turning apples and oranges into fruit salad, so be it. It's their adaptability to challenges and their willingness to change that puts them ahead of the competition.

Read the methodology used to choose the IW 50 Best.

Double Digit Performance (%)

Company Name Industry Profit Margin Revenue Growth ROE ROA
Amphenol Corp. Computers/Electronics 10.7 23.5 50.5 13.8
Autodesk Inc. Publishing/Printing 18.0 29.6 35.6 21.8
Coach Inc. Leather Products 19.8 38.6 61.3 42.4
Columbia Sportswear Co. Apparel 12.7 15.1 21.6 17.7
Electronic Arts Inc. Publishing/Printing 19.5 19.1 32.3 24.5
Gillette Co. Fabricated Metal Products 16.1 13.2 76.0 17.0
Int. Game Technology Machinery 19.7 16.8 29.0 11.7
Johnson & Johnson Pharmaceuticals 18.0 13.1 31.7 17.6
Lexmark International Inc. Computers/Electronics 10.7 11.8 34.6 16.5
Newfield Exploration Co. Petroleum/Coal Products 23.1 33.0 22.8 11.4
Procter & Gamble Co. Chemicals 12.6 18.5 40.0 14.8
Qualcomm Inc. Communications Equipment 35.2 22.9 22.6 19.5
Timberland Co. Apparel 10.2 11.8 35.6 23.8
Varian Medical Systems Inc. Machinery 13.5 18.6 29.7 15.9
Wm. Wrigley Jr. Co. Food 13.5 18.9 27.1 19.6
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