Kallet Seeks To Restore The Luster

Oneida Ltd.'s CEO is breaking with tradition to make the flatware maker shine again.

Nobody can claim that Peter J. Kallet isn't a company man. Thirty-five years ago, at age 20, he was mowing the lawn at Oneida Ltd., an upstate New York maker of table silverware and flatware, when the accounting department needed a gofer. Somebody remembered that the lawn boy was studying accounting at Syracuse University. So they moved Kallet indoors for a few days. Today, at age 55, Kallet is chairman, president and CEO, and he's cutting out the business practices that threatened to destroy 125-year-old Oneida. Tradition had become the biggest problem for Oneida, the oldest company on the New York Stock Exchange. Although founded in 1877, the company traces its roots back to a utopian community begun in 1848. John Humphrey Noyes, the founder of the Oneida community coined the term "free love" and believed that group relationships within the community were more godly than monogamous marriage. The town of Oneida, about an hour's drive east of Syracuse, now stands where the community once stood, and Oneida the company, which was founded to support Noyes' community, still employs about 1,700 of the town's 12,000 residents. Kallet isn't the first top Oneida executive not to be named Noyes, but he was the first not to have direct ties to the original family. And, significantly, he was the first to challenge the principle that guaranteeing jobs was the company's most-important mission. In 1999 he cut 25% of the line employees in the Oneida home plant and replaced deadwood management. Kallet literally heard about it. When his wife begged for an unlisted phone number, he refused. "I grew up here, and I had to fire some of the people I went to high school with," says Kallet. "My wife was concerned about phone calls and wanted an unlisted number. I told her I couldn't do that. I had to talk to those people because I had to live in this community." Kallet's move to cut people and costs won him investor support. "Oneida Ltd. was rooted to the goal of doing everything for the employees," says Franklin Morton, director of research at Ariel Capital Management Inc., Oneida's largest stockholder. "It wasn't run like a traditional American corporation. [But] Pete properly realized that if Oneida didn't make significant changes, it was going to have real problems. It wasn't going to survive another generation run the way it was." Recession And Terrorists Though desperately needed for survival, Kallet's changes haven't exactly turned Oneida into a lustrous, problem-free money machine. In addition to individual households, restaurants, hotels and institutions are the customers for Oneida's forks, knives and spoons, glassware and dinnerware. A slower U.S. economy combined with last September's terrorist attacks has meant fewer people are traveling to resorts and going out for dinner. And many airlines no longer use metal flatware for meals. Not surprisingly, last year's net revenues tumbled to $499.2 million from $515.5 million in fiscal 2000. Net income in 2001 was $8.5 million, or $0.51 per share, compared with $23.2 million, or $1.41 per share, in 2000. But like the U.S. economy generally, Oneida is looking better this year. Net income for the first quarter of fiscal 2002 was $1.7 million, compared with $400,000 in the first quarter of fiscal 2001. Earnings-per-share of $0.10 beat First Call's estimate of $0.03 to $0.05. Still, securities analysts, shareholders and Kallet himself know that things must get even better. "Pete's got a strategy and a vision for the company. He's a committed, dynamic guy, and his vision is a good one -- he wants to dominate the tabletop industry," says Tony Campbell, an analyst at Knott Partners, Syosset, N.Y. "There's just one caveat: He has to deliver the balance sheet." Kallet has a history of working to deliver results. Even with a degree in accounting, he didn't spend much time in the finance department at Oneida. He made his mark as a salesperson. Before he took over selling Oneida's restaurant and commercial lines in 1988, the division accounted for only a small fraction of the bottom line, just $24 million. Eight years later, in 1996, when Kallet became Oneida's president and COO, the commercial division delivered $150 million. The years 1997 and 1998 were record years for Oneida. But in 1999, when Kallet became CEO, he aggressively set about growing and restructuring the company, in addition to reducing the number of employees. He sold Camden Wire, a $140 million division. "It was outside our core competency," he says. Kallet acquired seven, smaller tableware companies and moved some production to Mexico, where it could be done more economically. The acquisitions added $150 million in bank debt, for a total of $303.7 million in the third quarter of 2000. "He closed facilities, reduced head count, put a focus on efficiency and productivity. All the things he did made it a better business," states Ariel Capital's Morton. "Unfortunately, the recession hit in the middle of what he was trying to accomplish." But the recession didn't slow Kallet. In some ways, it focused his determination. In 2000, "we attacked the balance sheet. We decided that for us to be a world-class company, for us to get back to acquiring companies and to giving good shareholder returns, we needed to completely gut the company," Kallet says. "And we did." It was a four-pronged attack. "We needed to reduce debt and reduce inventory to get the cash necessary to drop debt. We had to improve our receivables," says Kallet. "We were known in the industry as the good guys. You could buy anything you wanted and pay us when you felt like it," he relates. "We had to change the philosophy. We had to bring in people who would be aggressive." By the end of last year, Oneida had cut the number of items that it was making and selling to 9,200 SKUs from 30,000. And it expects the number to fall further to 8,500 SKUs by the end of this year. This means less warehousing, lower inventories and fewer people to manage and ship the product. Indeed, it was when Kallet took a hard look at personnel, from line workers to management ranks, that his home phone really started ringing. He fired a senior manager who said he didn't know why his division had lost its largest account. The rest of the departures were handled more charitably. "We had a lot of middle and upper managers who just quit," Kallet recalls. "We offered them an attractive incentive package to leave, but for many that wasn't the motivation," he says. "They would look at me and say, 'I want it to be the way it was.' And I would tell them, 'It's never going to be that way again; it can't be.' And they would decide that it was time for them to go." Oneida ironically went back to the original Oneida community's philosophy of rewarding for productivity. The company had moved away from the notion of providing larger pieces of the pie for individuals who worked harder. Kallet returned the company to paying incentives and within 10 days worker productivity had increased 24%. However, "once we started making more product, it became clear to everyone that we didn't need as many people as we had," Kallet says. A Niagara, Ontario, plant was closed, and the work divided between Oneida and a recently acquired plant in Mexico. Kallet The Communicator John Dobek, vice president of Edgecomb Steel's stainless and aluminum division based in Syracuse, Oneida's largest supplier, watched the changes -- first with trepidation and later with enthusiasm. That was in large measure because Kallet made communication a priority. "In the beginning I was concerned -- they're our single largest customer -- but they gave us unfettered access to all levels within Oneida," Dobek says. "I don't have to go through layers to get a hold of someone in operations, materials planning [or] engineering. We have relationships at every level from Pete Kallet down," he emphasizes. "A lot of companies just talk about communication. Pete makes sure it happens." On the financial front, long-term debt has been reduced by $70 million -- falling at a rate of about $10 million a quarter. Some 50 Oneida employees have been rehired. And while net revenues in the first quarter of 2002 were less than in last year's comparable period, earnings per share increased to $0.10 from $0.02. "I'm most pleased and proud of the internal improvements," Kallet says. "Our people were able to adapt, change their focus, change their way of doing business," he says with pride and admiration. "We are the only domestic producer of flatware left in the U.S. And the reason that we can compete with the Orient is because we have such productivity from our people and our processes."

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