The family farm is nearly extinct. There are 2.1 million farmers in North America, but 50 percent of farm equipment is bought by only 50,000 businesses. At least in some respects, that means a tougher row to hoe for Robert J. Ratliff, chairman and CEO of AGCO Corp., an Atlanta-based manufacturer.
Bigger farms that are farther apart have led to larger dealerships covering more territory and an erosion of brand loyalty among farm managers in favor of distributor relationships.
"Corporate-owned or operated farms continue to get bigger and bigger," says Ratliff, 62, an affable Uniroyal Tire veteran who has been chief executive of AGCO since October 1988 and chairman since last August. "Farms are 50 percent larger than 15 years ago. As they grow, they must maintain yield and quality. Because they want to grow their crops faster, they want tractors and combines with greater speed and quality."
To meet this demand, Ratliff hit the acquisition trail in recent years. You may not have heard of AGCO-the descendent of agricultural equipment manufacturer Allis-Chalmers-but you've likely heard of some of the prestigious brands now under the far-reaching corporate umbrella.
Last year, the company paid Chicago-based Allied Products an estimated $60 million for its tractor-manufacturing and replacement parts White-New Idea Farm Equipment Division. It also bought the North American distribution business of tractor and combine manufacturer Massey Ferguson from Buffalo, NY-based Varity Corp. In 1991, it snapped up Kansas-based Hesston Corp. and the White Tractor Division of Allied Products.
John McGinty, managing director of New York brokerage First Boston, says the acquisitions have been a shot in the arm for AGCO. Sales jumped 89.4 percent last year to $595.7 million, while net income more than doubled to $125.3 million.
"It was a combination of a better market, increased market share, pricing, and the assimilation of the acquisitions," McGinty says. "Ratliff has done a superb job."
With the acquisitions, AGCO controls a network of more than 3,500 dealers. Most handle multiple AGCO brands, unlike dealers affiliated with major competitors Moline, IL-based Deere & Co. and Tenneco subsidiary J.I. Case Co. in Racine, WI. Because of the dealerships' pivotal role, Ratliff spends more time in the field than at his Atlanta command post.
To be sure, the game is changing quickly. So far, AGCO is keeping pace. Says analyst McGinty: "Their whole trick is to use the leverage of all those [3,500-plus] distributors."
"The dealer has become the supermarket for his market area," Ratliff says. "The crossover contracts we offer add opportunities for him to sell products he didn't have previously, generating volume discounts and more opportunities and profits for him.
More than a decade ago, Bob Levine's high school classmates voted him "Least Likely to Succeed." In 1992, a different group of peers voted S. Robert Levine, president and CEO of Cabletron Systems, Inc. magazine's "Entrepreneur of the Year," an honor he shared with Craig Benson, the company's chairman. Since 1983, the duo have taken Rochester, NH-based Cabletron, the world's largest maker of computer networking cables, from a privately held firm launched in Benson's garage to a public company employing 3,100 people in 18 countries worldwide. Today, the crewcutted, 36-year-old Levine resembles a squat Arnold Schwarzenegger-the result of hoisting weights, scattered around his office, when the mood strikes.
"I've done it for 17 years," he says. "It relieves stress and makes me feel aggressive."
As if the kinetic Levine-or Cabletron-needed additional pumping. Sales in the nine months ended November 30, 1993, soared 46 percent from the year earlier period to $429.9 million from $295.2 million. Net income of $83.5 million represented five-year growth of 120.6 percent. The company, which went public in 1989 with an initial offering price of $15.50 a share, recently traded on the New York Stock Exchange at $122, an eye-popping order of magnitude above its 52-week low of $74.
Cabletron's roster of customers includes 80 of the Fortune 100. Its products, which allow computer systems to share information with others inside and outside a company, have won the respect of analysts and technology experts.
"Cabletron has an exceptional future," says William Becklean, senior vice president and head of the technical analysis group at Boston-based Hancock Institutional Equity Services. "Levine and Benson make decisions quickly. If they're wrong, they change them." Becklean also praises Levine for a hands-on approach, including direct involvement in closing 25 percent of sales.
Doug Carey, a technology analyst with New York-based RAS Securities, says Levine's aggressive salesmanship has enabled Cabletron to maintain relatively high profit margins. Carey sees the company riding an expected boom in demand for products linking computers and networks to the information superhighway. Cabletron, he says, has taken an early lead in the development of special ATM bridge products and internetworking devices to handle highspeed data traffic.
"There's no reason the earnings trend should change," Carey adds. "We'll probably see another 30 percent increase on the stock price within another year." Interestingly, there's no computer in Levine's small, cluttered office. "I don't know how to use one," he admits. In a swipe at such larger competitors as IBM or WANG, where thousands have been lopped from the payroll, he says: "We don't spring clean every 25 years. Every day, we make sure our people are productive. If they're not, they're moved out.
"I've seen too many companies promote incompetence. I hire dedicated people, brighter than me, and give them the chance to succeed."
No shrinking violet, Levine periodically duels with the state government in Concord, NH, over taxes and economic incentives. In 1991, he threw down the gauntlet over the Business Profits Tax, which, Levine argued, fell disproportionately on large firms.
The CEO took his case to the New Hampshire State Supreme Court. He was forced to set aside millions in escrow during the appeals process. Finally, last year the court ruled against the company. Still, the message was not lost on key politicos. Last year, Governor Steven Merrill introduced a new Business Enterprise Tax, under which the overall tax burden of large manufacturers was reduced. Ultimately, the levy was passed by the state legislature. Nevertheless, Cabletron opted last year to expand in Rhode Island instead of in homestate New Hampshire.
Weekends find Levine racing one of his two powerboats or roaring down a country road on one of his four Harley-Davidson motorcycles. He is the sole trustee of the Levine Family Charitable Trust, which he created in 1989. Since its inception, the trust has made sizable contributions to a host of charitable organizations.
For example, he recently presented country music singer Willie Nelson, president and chairman of Farm Aid, with $100,000 to help farmers battered by flooding along the Mississippi River.
"We're all Americans," Levine says. "I wanted to encourage other corporate executives to help."
We don't go into any business unless we have as a silent marketing partner, a powerful third force," says Josh S. Weston, 63, chairman and CEO of Automatic Data Processing. That third force usually manifests itself in well-defined regulations that govern ADP clients. In ADP's biggest business-payroll processing-Internal Revenue Service statutes and federal wage and hour laws keep clients on the straight and narrow. For brokerage clients, the New York Stock Exchange and the SEC play watchdog.
In the fiscal year ended June 30, Roseland, NJ-based ADP posted net earnings of $256 million, up 13 percent from the year before. Revenues jumped 10 percent to $1.94 billion. Not bad for a company with modest tangible assets: ADP has $450 million in cash and a market valuation of $6 billion, of which it owns $1 billion itself. Clearly, the force is with Weston and his 20,000 associates, as ADP's employees are called.
Many of those associates spend their days processing the paychecks of 15 million employees of client companies and also filing quarterly tax returns for 175,000 business clients with 2,000 government agencies. In 1991, such employer services raked in $1 billion, almost 60 percent of ADP's total revenues.
Each of ADP's two main competitors in payroll processing-Control Data and Paychex-have only a fifth of the company's business in this area. Since ADP's market share amounts to 10 percent of the nation's estimated 150 million private sector employees, there's still room for more business. Hence the May 1992 acquisition of San Francisco, CA-based BankAmerica's 17,000 payroll clients, which shepherded 2.5 million new paycheck recipients into the ADP fold.
Founded in 1949, ADP grabbed a large corner of the market 20 years later, when the U.S. Department of Justice forced IBM out of the service industry. Weston, who has been ADP's CEO for the last 10 years, signed on as vice president in 1970, after 18 years with Popular Club Plan, a mail-order business.
"Josh Weston runs ADP exceptionally well, with incredible attention to detail," says Stephen McClellan, an analyst with Merrill Lynch. "They've outflanked and outclassed their competition."
As might be expected of a CEO whose business is paychecks, Weston takes a stand on CEO compensation: "It should be linked directly to the long-term performance of the company's stock," he says, "not to a tricky algorithm.
"Executive stock options should only be worth something if the stock goes up. To me, that's the most significant single leverage factor, because it deals with the result. If everything we do doesn't make our outside shareholders feel good, the fact that we had an internal algorithm that said we did a good job-well, we can forget about it, because the stock was, say, $8, and it's still $8."
Weston last year took home $879,000 and received options for 466,000 shares of ADP stock, which currently trades at $45 a share.
In a $6 billion "jeanswear" market bursting at the seams with manufacturers, VF Corp.'s Wrangler, Lee, Rustler, and Girbaud brands sewed up a 27 percent market share in 1991. These powerhouse brands alone chalked up more than 55 percent of $2.95 billion in overall sales for Wyomissing, PA-based VF, the undisputed market leader.
Says Lawrence R. Pugh, VF's chairman, president, and CEO: "We are covering every retail segment and every consumer segment, and we are No. 1 in each category because of our multiple brand strategy."
Keeping VF ahead of such archrivals as Levi Strauss (21 percent of the domestic jeanswear market but the leader overseas) is a demanding job, and recently, there have been some rough spots. Net income dropped 54 percent over the two years ended in 1990. Pugh describes the period as "two tough years."
But last year, profits doubled to $161 million, and return on equity was a solid 18.8 percent. In the second quarter ended July 4, net income jumped 51 percent to $46.2 million. Observers attribute the company's rebound to a tighter focus by Pugh and his managers and a program to help retailers sell more aggressively.
In Pugh's 12 years as CEO, VF's sales have climbed to almost $3 billion from $600 million, the result of aggressive brand management. In addition to jeanswear-a category that includes just about any clothing made of denim-VF also makes sportswear and intimate apparel with such well-known brand names as Jantzen, Vanity Fair, and Vassarette.
Many companies have succumbed to the lure of producing in lower-cost locations, such as the Pacific Rim. These days, the "Made in the U.S.A." label is stitched into just 45 percent of clothing sold here. But VF continues to make most of its products stateside. "We can do this because we are not in 'high-needle' sewing labor products," says Pugh, 59. (High-needle products include such labor-intensive garments as women's dresses and men's suits.)
Home-market manufacturing speeds the distribution of VF goods: The company is striving to cut cycle time by 40 percent, inventory by 80 percent, and costs by 20 percent. The targets are part of VF's Market Response System, a complex blend of merchandising, market analysis, satellite data transmission, and just-in-time manufacturing.
"We used to ship stuff that we thought was right, the store thought was right, but the consumer wasn't buying," Pugh says. "We'd have tons of markdowns and arguments with retailers about who would pay for this. Thirty percent of the time, the consumer does not find the style or color or size he or she wants. We're cutting that down to 10 percent.
"The industry used to deliver two major product lines a year," adds Pugh, who became VF's CEO in 1980 after working 22 years in the consumer products business for such companies as Borden, Hamilton Beach, Ampex, and Samsonite. "Now, we're going toward continuous merchandising, with research and testing going back into our system in record time."
In an era marked by debates about the merits of delegating decision-making authority, James B. Williams, chairman and chief executive officer of SunTrust Banks, takes a pragmatic approach.
"My managers have autonomy until they aren't making money. Then they don't have it anymore," Williams said. "Rather than wake up at night wondering what's happening in the 50 banks we own, I want the guys who are running them to wake up at night."
If that's so, Williams' team might be in need of a catnap. Suntrust is sagging under $673.3 million in nonperforming assets, and Williams allows: "We're a little scared of making loans." Even so,, observers generally give the CEO high grades for his stewardship at $34.6 billion-asset SunTrust, citing his decision to play up the bank's strengths and take a hands-on approach.
"I know something about everything at SunTrust," Williams says. "I think I spend more time watching our assets than the average banking CEO does."
These days, with SunTrust's Florida divisions burdened with sour real estate loans and its Tennessee market in a recession, Williams is keeping an eye on the trust business, traditionally one of the bank's strongest profit producers. In 1991, trust earnings hit $200.1 million. Williams notes: "Trust income drives this bank." The reason: a slate of high-profile trust customers, including Atlanta-based Coca-Cola, which keeps its original soft drink formula in a safe-deposit box at SunTrust. "I believe one of the good things we've got going for us is our identification with that company," Williams acknowledges. SunTrust owns 12 million Coca-Cola shares, valued just shy of $1 billion, which it acquired in 1919 as a $110,000 transaction fee. Williams sits on Coke's board and on the boards of the Robert W. Woodruff Foundation and Emory University.
Overall, SunTrust ranks among the top 20 American banks in assets and market capitalization. Trust Company of Georgia, the company's core bank, has generally been careful with its loans over the years, and when it did stumble, it was fortunate enough to do so just before the boom years of the 80s. "We took a big hit, a year's earnings, in real estate in the mid 70s," Williams recalls. "We learned our lesson then."
In 1991, SunTrust reported net income of $370.7 million, up 5.8 percent from $350.4 million the year before.
Despite tough times in the banking industry, Williams is already planning for expansion. "We have to wait on the economy," he said. "When we get down to $300 million or $400 million in nonperforming assets, then we'll charge."
As the auto industry languishes, more and more people are repairing cars they might normally have traded in for new ones. Whether they do it themselves or rely on a mechanic, their old cars need new parts. Or, as Larry L. Prince might say, they need Genuine Parts.
As chairman and CEO of the nation's largest auto parts supply company, Prince heads an organization that distributes 125,000 items through almost 6,000 NAPA outlets. Retail auto parts sales in America amount to $60-$65 billion annually.
"The market is so large," says Prince, "yet it's highly fragmented. We are the largest, yet we still have only about 5 percent of the market available to us."
Steady but unspectacular growth has been the rule for Genuine Parts Company since it was founded in Atlanta in 1928. Today, the company's revenues ($3.3 billion in 1990) make it bigger than CBS, but a resolutely low profile has kept it relatively unknown to those outside the industry.
Stockholders, however, have been pleased by Genuine Parts' 35 consecutive years of dividend increases. In 1990, the corporation had a net income of $206.6 million, up 4 percent from 1989. That was also a 21 percent return on net worth. Genuine Parts' largest earner (64 percent) is the Automotive Parts Group that serves 6,000 NAPA stores through 64 nationwide distribution centers. Only about 10 percent of the NAPA stores are company owned; the rest are informal partnerships, agreements made "with a handshake," according to Prince. NAPA provides the parts, accounting, insurance, and other support. "All we ask of the dealers is that they be aggressive in the market," he says. "When things slow down, we try to work with the owner, and this is usually successful.
NAPA will continue to grow slowly but surely under Larry Prince's leadership. "We seek to improve our market penetration little by little over the years," he says, "rather than throw a lot of money at something that won't succeed." Emphasis is placed on careful inventory controls and knowledgeable personnel: "You can only grow as fast as you can train people to service their markets."
Larry Prince has been with the company since he started in the stock room of the Memphis office 33 years ago. At 53, he's only the third CEO in Genuine Parts' history. A quietly influential member of the Atlanta business community, he's also chairman of the sixth district Federal Reserve Bank.
Though his company is doing relatively well in the recession, Prince wants to see the auto industry on its feet again. "We would rather that new cars just steadily sell. Our market begins about three years after purchase, so we want to keep the car population up."