Focus On The Best 50

Dec. 21, 2004
The top U.S. manufacturers have overcome terrorism, war and recession to deliver superior performance.

It would be the mother of all mergers. If IndustryWeek's Best Manufacturing Companies joined together to form one company -- yes, all 50 of them -- its combined revenues would be close to $700 billion, its profits more than $65 billion, and it would be one lean manufacturing machine. No other company could compete against an enterprise with Take-Two Interactive Software Inc.'s revenue growth wizardry, Coach Inc.'s craftiness at delivering return on assets, Dell Computer Corp.'s ability to turn inventory and Forest Laboratories Inc.'s determination to squeeze profits from sales. In putting together our second annual list of the 50 Best Manufacturing Companies, we considered financial measures demonstrative of both operational efficiency and market success. Members of the IW U.S. 500, the largest publicly traded manufacturing companies in the United States, were considered. We selected the top performers by comparing financial performance during the past three years (2000 to 2003) in six areas: revenue growth, return on equity (ROE), profit margin, asset turnover, inventory turnover and return on assets (ROA). IndustryWeek's 50 Best Manufacturing Companies performed well during a three-year period when Sept. 11, a recession and the repercussions of the Iraq War tested every industry. As a group, the Top 50 achieved a median ROE of 27% and a ROA of 15% in 2003, compared with a median ROE of 11% and ROA of 4% for the other 450 companies in the IW 500. The leading manufacturing companies posted median revenue growth of 13% over the most recent fiscal year, which compares with median growth of 7% by the other 450. New York-based Take-Two Interactive Software Inc.'s revenue growth of 30% last year followed a robust 76% growth rate in 2002. The maker of interactive software games such as Grand Theft Auto 3 accelerated its 2003 growth when it acquired TDK Mediactive Inc., publisher of videogames such as "The Haunted Mansion," "Pirates of the Caribbean," "The Land Before Time" and "The Muppets." More than 50 years ago, the founder of Coach Inc. created the company's first handbag after being inspired by a baseball glove's distinct markings. Today, the New York-based company is a leading maker of fine leather handbags, jewelry and other accessories. From 2001 through 2003, Coach put together three consecutive years of solid ROA: 22%, 33% and 33%. Of course no single financial ratio tells the whole story. Raj Aggarwal, a management professor at Kent State University in Kent, Ohio, says ROA is a measure that varies by company or industry depending upon how much is made in-house or purchased. A company that relies on outsourcing and that has little of its own assets would more easily generate a higher ROA. The appearance of Round Rock, Texas-based Dell Computer Corp. for the second year in a row is no surprise given the company's revenue growth of 17.1% and net income growth of 25% in 2003. Dell's operational prowess is reflected in its outstanding inventory management with 107 turns in 2003, up from 100 turns in 2002 and 76 turns in 2001. Dell continues to stay ahead of its competitors thanks to its build-to-order, sell-direct-to-customers business model. In the first quarter of fiscal year 2005, Dell was well on its way to another good year. Product shipments for the period ending April 30 were up 25% from the same quarter a year ago. "In some ways it is unfair to compare Dell with other companies," Aggarwal says. "Dell has such a big advantage with its just-in-time, pull-type of production system." Forest Laboratories Inc., New York, manufacturer of pharmaceutical products that address central nervous system disorders, hypertension and pulmonary disorders, leads the Top 50 in generating the highest profit margins. Thanks to successful marketing of its Lexapro, Celexa, Benicar and Aerobid brands, the company generated margins of 18%, 21% and 28% from 2001 to 2003. Forest Laboratories' ability to turn a profit was positively impacted last year by an increase in the proportion of its production in Ireland, where tax rates are lower than in the United States. Eighteen companies are new to the list of top performers this year, including Clorox, Columbia Sportswear, Holly Corp., Electronic Arts, Coca-Cola, Liz Claiborne, Varian Medical Systems and Quiksilver. Huntington Beach, Calif.-based Quiksilver Inc., a maker of hip teen clothing and snowboards, increased its revenues by 38% from $705 million in 2002 to $975 million in 2003. Using the magic of Harry Potter, publisher Electronic Arts waved its magic wand last year and sold more than 1 million units of its interactive entertainment software. One of the Redwood City, Calif-based company's top sellers was "Harry Potter and the Chamber of Secrets." Independent petroleum refiner Holly Corp., one of four petroleum companies in the Top 50, registered a hefty revenue growth of 58% last year. The Dallas-based company increased its revenues from $973 million in 2002 to $1.4 billion in 2003. Net income increased from $18.8 million to $46 million during the same time period. Holly increased its refining capacity in 2003 by acquiring a refinery from ConocoPhillips Co. The company also expanded one of its own refineries. Thirty-two companies from last year's list repeat as top performers in 2004. Among them are companies such as Donaldson, Harley-Davidson and Procter & Gamble. Because name recognition is not a criterion for inclusion, this year's list is missing some of the United States' most well-known manufacturers. The top two U.S. automakers, General Motors Corp. and Ford Motor Co., are nowhere to be seen. IBM Corp. and even highly profitable Microsoft Corp. also are absent. GM, the second largest in terms of total revenue among IW U.S. 500 companies, had a slim profit margin of 2.1% in 2003, though much better than Ford's skimpy 0.3%. Eight publishing and printing companies are represented on the Top 50 list: New York Times, Electronic Arts, Dow Jones & Co., Deluxe, Take-Two Interactive Software, Reynolds & Reynolds, Harte-Hanks and Valassis Communications. New York Times Co. generated $302 million in profits on revenues of $3.2 billion in 2003. The company completed the acquisition of the International Herald Tribune in 2003 and generated more than $1 billion in ad revenues in each of the last three years. Lake Forest, Calif.-based Western Digital Corp., maker of hard drives for the world's leading PC assemblers, reported an industry-leading asset turnover rate of 3.1 turns in 2003. Last year the company grew revenues by 26% to $2.7 billion. Western Digital capitalized on worldwide hard drive growth of 10% in 2003. It also grew its net income from $65 million in 2002 to $182 million in 2003. Thanks to robust sales and tight control of expenses, the company retired all of its $86 million of convertible debt last year. Every company in IW's Top 50 has done more than survive during difficult times. Each has grown through innovation, acquisition or by operating more intelligently and efficiently than its competitors. IW's best companies also demonstrate that as knowledge-based enterprises grow, manufacturing remains a potent force in the U.S. economy. Top 50 Performers

IW500 Rank Company Revenue, $Millions Profit Margin, %
1 Exxon Mobil Corp. 242,365 8.9
5 ChevronTexaco Corp. 119,703 6.0
13 Procter & Gamble Co. 43,377 12.0
14 Johnson & Johnson 41,862 17.2
15 Dell Inc. 41,444 6.4
29 PepsiCo Inc. 26,971 13.2
35 Johnson Controls Inc. 22,646 3.0
39 Coca-Cola Co. 21,044 20.7
47 3M Co. 18,232 13.2
62 Anheuser-Busch Cos. Inc. 14,147 14.7
77 Colgate-Palmolive Co. 9,903 14.4
144 Mohawk Industries Inc. 5,005 6.2
149 Harley-Davidson Inc. 4,904 15.5
153 Avery Dennison Corp. 4,763 5.6
154 Lexmark International Inc. 4,755 9.2
166 Liz Claiborne Inc. 4,241 6.6
167 Hormel Foods Corp. 4,200 4.4
171 Clorox Co. 4,144 11.9
187 Ecolab Inc. 3,762 7.4
190 American Axle & Mfg. Holdings Inc. 3,683 5.4
192 Stryker Corp. 3,625 12.5
208 New York Times Co. 3,227 9.4
215 Wm. Wrigley Jr. Co. 3,069 14.5
230 Western Digital Corp. 2,719 6.7
231 Cintas Corp. 2,687 9.3
237 Electronic Arts Inc. 2,482 12.8
256 Forest Laboratories Inc. 2,246 27.7
266 Alliant Techsystems Inc. 2,172 5.7
270 International Game Technology 2,128 18.4
301 Zimmer Holdings Inc. 1,901 18.2
302 Universal Forest Products Inc. 1,899 2.1
318 Hon Industries Inc. 1,756 5.6
333 Patterson Dental Co. 1,657 7.2
338 Polaris Industries Inc. 1,629 6.8
346 Thor Industries Inc. 1,571 5.0
348 Dow Jones & Co. Inc. 1,548 11.0
377 Holly Corp. 1,403 3.3
388 Timberland Co. 1,342 8.8
412 Deluxe Corp. 1,242 15.5
414 Donaldson Co. Inc. 1,218 7.8
430 Pogo Producing Co. 1,162 25.0
444 Lancaster Colony Corp. 1,107 10.2
461 Varian Medical Systems Inc. 1,042 12.6
464 Take-Two Interactive Software Inc. 1,034 9.5
471 Reynolds & Reynolds Co. 1,008 11.8
481 Quiksilver Inc. 975 6.0
487 Coach Inc. 953 15.4
488 Columbia Sportswear Co. 952 12.6
490 Harte-Hanks Inc. 945 9.2
498 Valassis Communications Inc. 917 11.3

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