PUBLIC COMPANIES
Special Report: A Closer Look at Orange County’s 10 Largest Public Companies
Following are snapshots of Orange County’s top 10 public companies, ranked by 12-month revenue through December 2003.
Dropping off the list was last year’s No. 4, Fidelity National Financial Inc., which moved its headquarters to Jacksonville, Fla., from Irvine. Joining the list at No. 9 was Irvine-based chipmaker Broadcom Corp. See front page story, on OC’s 50 biggest public companies.
1. INGRAM MICRO INC.
Headquarters: 1600 E. St. Andrew Place, Santa Ana
Employees: 11,300; 1,250 in OC
Business: Technology products distributor
Market value, as of April 5: $2.8 billion
12-month revenue: $22.6 billion, up 1%
12-month net income: $149 million, versus $275 million loss
Year in review: The abrupt retirement in March of Michael Grainger, chief operating officer and president of Santa Ana-based Ingram Micro Inc., marks the end of a cost-cutting era at the computer products distributor.
Grainger, who said he was quitting to spend more time with his family, oversaw about 4,800 job cuts worldwide since 2001. Whatever the reason for the resignation,Chief Executive Kent B. Foster had just named two new co-presidents, Gregory Spierkel and Kevin Murai, who had headed Ingram’s European and North American operations,the cost-cutting has paid off.
Ingram posted net income of $149 million last year, a big gain versus the $275 million loss it reported a year earlier. And the company’s sales decline came to a halt,though barely.
Ingram reported $22.6 billion in sales in 2003, up 1% versus a year earlier. Revenue had slumped 11% in 2002 amid the technology downturn.
But the 2003 sales number wasn’t as good as it looked. Ingram said a number of factors boosted sales, including a weakened U.S. dollar against European currencies, plus an additional three selling days in 2003.
What’s ahead: The forecast looks pretty good.
In late February, the company said it expected to report first-quarter net income of $36 million to $40 million on sales of $6.1 billion to $6.3 billion,much higher than the $5.5 billion in sales previously forecast.
Ingram plans on boosting sales of its more profitable gear,gross margins fell to 5.37% in the fourth quarter, versus 5.62% a year earlier,plus focus more on its fee-based logistics and marketing services.
Wall Street’s take: Shares jumped 22% to 19.6 on the upbeat quarterly report in February. They’ve since fallen to 18 at recent check.
Still, Ingram has posted an impressive 70% share gain in the past 12 months.
Analysts expect Ingram’s sales to check in at $25.4 billion this year as demand for computers and other tech gear improves. Net income is expected to be $167 million this year, versus the $149 million in 2003.
,Mike Mason
2. PACIFICARE HEALTH SYSTEMS INC.
Headquarters: 5995 Plaza Drive, Cypress
Employees: 7,500; 4,600 in OC
Business: Managed healthcare plans
Market value, as of April 5: $3.6 billion
12-month revenue: $11 billion, down 1%
12-month net income: $243 million, versus $758 million loss
Year in review: 2003 was a payoff year for PacifiCare after working through a restructuring that started in 2000.
The company turned 2002’s $757 million loss into a $243 million profit, thanks to higher premiums, new plan offerings and the paring of unprofitable plan subscribers.
Revenue was almost flat at $11 billion after PacifiCare lopped off more than 800,000 Medicare plan members in 2002. Meanwhile, the company showed gains last year in a key area: commercial membership, or workers enrolling in plans via their employers.
PacifiCare also was among the winners in the Medicare Prescription Drug Improvement and Modernization Act signed by President Bush late last year.
The legislation gave a boost to what had been a drag on PacifiCare,Medicare. PacifiCare and others are set to get an added $1.3 billion in Medicare funding in the next three years. That’s already resulted in lower co-payments for the some 680,000 members in PacifiCare’s Secure Horizons Medicare plan.
A $20 million ad campaign designed to boost PacifiCare’s image also hit its stride last year. The commercials, which tout PacifiCare’s newer plan offerings, are credited with boosting awareness and enrollment, according to the company.
What’s ahead: PacifiCare projects more gains this year. It sees net income coming in at $280 million to $290 million, 15% to 19% higher than 2003. The drivers: membership growth, cost management, Medicare legislation and debt reduction, according to the company.
“These events, along with our new commercial products and proprietary PPO network, have given us the momentum to resume membership growth in 2004,” Chief Executive Howard Phanstiel said in February.
PacifiCare could face tougher contract talks later this year from employers leery of another year of higher premiums. For 2004 contracts negotiated in late 2003, PacifiCare got premium increases in the mid-teens, down from 17% for 2003.
Wall Street’s take: PacifiCare’s shares are up more than 200% in the past year based on its improving profits. Two brokerages upgraded the company’s shares in February and March after Goldman Sachs & Co. slammed the stock by issuing a gloomy report in January.
The concern: PacifiCare and its rivals may not see the same hefty premium increases of the past few years in 2004. PacifiCare’s shares plunged on the report but since have recovered. For the year, Wall Street sees PacifiCare’s revenue picking up, growing about 1% to $12.3 billion.
,Michael Lyster
3. FLUOR CORP.
Headquarters: 1 Enterprise Drive, Aliso Viejo
Employees: 30,252; 1,458 in OC
Business: Engineering and construction
Market value, as of April 5: $3.2 billion
12-month revenue: $8.8 billion, down 12%
12-month net income: $158 million, down 4%
Year in review: Iraq work grabbed the headlines, but a big story for Fluor last year was the company’s power shortage.
The engineering company saw its overall revenue slip 12% to $8.8 billion, versus a year earlier, as the company’s 14-year venture with Charlotte, N.C.-based Duke Energy Corp. was dissolved amid falling demand for power plant work.
Fluor’s power unit accounted for $2.2 billion in revenue in 2002; last year it fell to $759 million.
So Fluor moved to diversify during Chief Executive Alan Boeckmann’s second year as the company’s top executive. A goal: Boost government work.
Fluor made three acquisitions in its government and operations and maintenance units last year.
The company’s $50 million buy of Palos Verdes-based Del-Jen Inc. typified Fluor’s strategy. Del-Jen does military base maintenance and training for the Labor Department, with sales near $140 million a year.
On post-Iraq war reconstruction work, Fluor’s results were mixed in 2003. The company lost out on an initial $1 billion contract awarded to rival Bechtel Group Inc. It then hired a Beltway insider to steer the company’s lobbying work, and formed a venture with Britain’s AMEC PLC to bid on work.
In the fall, the company’s prospects picked up with a $100 million deal that could swell to $500 million to repair Iraq’s electrical grid. The Iraq payoff didn’t come until 2004.
Fluor slimmed down amid the revenue decline, with overall workers dropping 32% to 30,252 and OC employees declining 43% to 1,458.
Early in the year, Fluor tapped IBM Corp. to take over part of its global computer network, with about 250 workers moving to IBM in the deal.
What’s ahead: A full plate in Iraq and elsewhere.
Entering 2004, Fluor’s backlog was $10.6 billion, up 9% versus a year earlier. And there’s been plenty of good news in early 2004, particularly with Iraq-related work.
In February, Fluor learned it won a $100 million deal to build a U.S. military base in Baghdad. Then last month, the Fluor-AMEC partnership won a $500 million contract from the Department of Defense to help repair Iraq’s power grid.
Fluor also nabbed a deal earlier this year from the Army Corps of Engineers that could be worth as much as $1.5 billion. In that deal, the company will be called upon to do work in the U.S. Central Command’s area of operations, which includes about 25 countries.
Closer to home, Fluor won a $200 million contract naming it construction manager on the Orange County Performing Arts Center expansion.
Wall Street’s take: Shares of Fluor in the past 12 months are up just 7% to 38 at recent check, short of the S & P; 500 index’s 30% gain in the period.
2004 is expected to be a year of transition from an earnings standpoint, as the company moves from the final completion of a cycle of power projects, where margins are highest, to a new cycle of oil and gas projects, where margins are lower in the early stages.
Analysts peg Fluor’s 2004 earnings to be about $160 million, in line with last year’s figure, on a 7% jump in revenue to $9.4 billion.
,Mike Mason
4. FIRST AMERICAN CORP.
Headquarters: 1 First American Way, Santa Ana
Employees: 27,000; 2,267 in OC
Business: Title insurance, financial services
Market value, as of April 5: $2.4 billion
12-month revenue: $6.2 billion, up 32%
12-month net income: $451 million, up 92%
Year in review: A big change at the top for one of the country’s biggest title insurers.
In December, Donald P. Kennedy, grandson of First American founder C.E. Parker, said he would become chairman emeritus of the company he’s worked at for 55 years; his son, Parker S. Kennedy, is the new chairman and chief executive.
Meanwhile, it was just another blockbuster year for the title insurer and financial information company.
Playing off the housing boom, First American posted $6.2 billion in revenue, up 32% versus a year earlier. Net income was even more spectacular, rising 92% to $451 million as homeowners bought and refinanced homes at a record clip amid historically low interest rates.
In August, the company hiked its quarterly dividend 50% to 15 cents per share after record earnings in the first half of the year.
The title insurance market was so hot that state Insurance Commissioner John Garamendi launched a probe into possible price gouging by First American and Jacksonville, Fla.-based rival Fidelity National Financial Inc. In October, First American and Fidelity National were among several companies that agreed to pay $50 million to settle charges they levied hidden fees for their escrow and title services in the past eight years.
The company’s big launch last year was St. Petersburg, Fla.-based First Advantage Corp., which started trading on the Nasdaq stock exchange.
First American owns about 80% of First Advantage, which was spun off as a combination of First American’s screening business and its US Search.com acquisition. Shares of First Advantage are down 33% from their close of 25.21 on June 6 when they started trading.
True to its habit in the past few years, First American made several title company acquisitions last year, including Okemos, Mich.-based Midstate Title Co. and Seattle-based Escrow Partners Inc.
Another big buy: Transamerica Finance Corp.’s real estate tax service and flood insurance businesses, which it picked up for $375 million.
Still, with a wary eye on interest rates, which strongly influence the company’s results, First American is positioning itself for rate hikes. In October, First American said it would cut about 2,000 workers as title insurance work slowed.
What’s ahead: Possibly leaner times, particularly if interest rates rise as expected in the next few years.
The company has boosted its non-title insurance operations. Last year, title insurance accounted for 72% of the company’s revenue, down from 74% a year earlier.
“2004 will follow a typical seasonal pattern not seen in the past two and a half years,” said Parker S. Kennedy, in the company’s year-end release.
That’s because the company’s mix of business on the real estate side has shifted to residential resale and builder business, and away from heavy refinance activities.
The first quarter is expected to be slow “due to weather conditions, with improvements beginning in the spring and summer months,” Kennedy said.
Key will be integrating the Transamerica acquisition, which the company said was “ahead of schedule.”
Wall Street’s take: First American shares in the past year are up 20% to 30 at recent check.
After the heady gains of the past few years, analysts expect the company’s net income to fall 2% this year, with revenue falling 22% amid a slowdown in the housing market.
,Mike Mason
5. WESTERN DIGITAL CORP.
Headquarters: 20511 Lake Forest Drive, Lake Forest
Employees: 16,784; 886 in OC
Business: Disk drive maker
Market value, as of April 5: $2.4 billion
12-month revenue: $2.9 billion, up 19%
12-month net income: $159 million, up 24%
Year in review: It was a solid but eventful year on several fronts for the maker of computer disk drives.
Sales rose at a healthy 19% clip to $2.9 billion for the 12 months ended Dec. 26. Though revenue growth didn’t match the 24% gain a year earlier, net income jumped 24% to $159 million.
Western Digital made a big buy last year, nabbing bankrupt Read-Rite Corp. of Fremont for $180 million. The price tag wasn’t steep, but Western Digital took on 6,600 workers in the deal that closed last summer. Read-Rite makes heads that read and write data on drives and operated a plant in Fremont and factories in Thailand.
Drives for personal computers make up the bulk of Western Digital’s sales, but the company is trying a tactic that has failed it before: selling drives to big businesses for use in servers and data storage systems. The company launched its Raptor line of drives in early 2003,only three years after retreating from the business market.
The strategy paid some early dividends last year. “In addition to strength in our core desktop PC market, growing numbers of hard drives were shipped into newer markets,” including the business market, according to Chief Executive Matt Massengill, in Western Digital’s fiscal second quarter report for the period ending Dec. 26. Overall, Western Digital shipped 12.7 million units in the quarter, up from 10.3 million a year earlier.
Meanwhile, in one of the stranger episodes during the past 12 months, outspoken analyst Ashok Kumar with Minneapolis-based U.S. Bancorp Piper Jaffray Inc. raised the ire of Western Digital executives in the fall when he suggested the possibility of a “mystery crisis” at the company. Kumar said he believed that Western Digital was having trouble transitioning to the production of newer generation disk-drive parts. Western Digital denied there was anything problematic going on.
What’s ahead: The second successive good year comes amid optimism in the PC market.
One question mark is on the price front. Massengill said the market in the December quarter was characterized by “challenging inventory and pricing conditions that prevailed in the distribution channel.” But the inventory problems should be sorted out by the end of the March quarter, he said.
Also look for Western Digital to see some bottom-line benefits from its Read-Rite buy. One key new market for the company: disk drives for laptop computers, which it plans to start making by the end of next year. The company signed an eight-year, $5.1 million deal to sublease 50,000 square feet of space from personal computer maker Gateway Inc. in Lake Forest to work on the laptop project.
Wall Street’s take: A roller coaster year for Western Digital on Wall Street. Overall, the disk drive maker saw its shares rise 25% to 11.5 in the past 12 months.
But Western Digital saw big one-day declines of 17% when it announced its buy of bankrupt Read-Rite, and a 9% slap in December when it said falling prices would hurt its profit margins in the quarter.
Sandwiched in between was a 21% jump in share price after Western Digital said the Read-Rite deal would help earnings sooner than initially expected. Merrill Lynch & Co. initiated coverage on Western Digital in February with a “neutral” rating.
,Mike Mason
6. STANDARD PACIFIC CORP.
Headquarters: 15326 Alton Parkway, Irvine
Employees: 1,774; 250 in OC
Business: Homebuilder
Market value, as of April 5: $2 billion
12-month revenue: $2.4 billion, up 25%
12-month net income: $204 million, up 72%
Year in review: In a word, monumental. Standard Pacific rode the hot housing market to a record year.
Sales rose 25% from 2002 to $2.4 billion, while net income nearly doubled to $204 million. A trio of 2001 acquisitions in Florida and the Carolinas paid off for Standard as it helped offset slower growth in other markets.
The company also saw gains deeper down on the income statement. Gross margin percentage on the company’s homebuilding operation rose 330 basis points from 2002 to reach nearly 23%.
In the fourth quarter, Standard acquired Jacksonville, Fla.-based Coppenbarger Homes Inc. and the Sacramento operations of Vista-based Lucas & Mercier Development Co. The deals boost Standard’s operations in two growing housing markets.
What’s ahead: Cautionary expansion. Standard expects to spend some $800 million buying land to build houses on this year, 20% more than the $675 million the company spent in 2003. The number of Standard communities,a set of houses on the company’s own land or that of another developer,is seen jumping 30% from last year.
What Standard officials called “record order levels and backlog” prompted the company to raise its 2004 profit outlook to around $235 million, up from an earlier projection of about $220 million. For the year, Standard projects to deliver 9,300 new homes, plus another 300 as part of joint ventures. In 2003, Standard delivered 8,213 homes.
Homebuilding sales, which don’t include revenue generated from the company’s mortgage operation, are seen hitting $3.2 billion.
Wall Street’s take: Standard has been a darling with a doubling in its shares in the past year. But some analysts worry the company’s projections are too bullish in a market that could turn.
Interest rates, while still at historic lows, are the worry. No one expects rates to go up in an election year. But all bets are off after that. Higher interest rates could cool home buying and stifle Standard’s plans. Company officials say they can scale back if conditions change.
Another concern: Acquisitions and other expenses have boosted Standard’s debt to nearly $1 billion. The company has some $250 million in bonds due in 2008 and more than $100 million in bonds due each year for five years after that.
In March, Standard said it plans to issue $300 million in debt to pay $250 million in debt due in 2008 and 2009.
,Michael Lyster
7. BECKMAN COULTER INC.
Headquarters: 4300 N. Harbor Blvd., Fullerton
Employees: 10,606; 2,750 in OC
Business: Medical diagnostic and laboratory products
Market value, as of April 5: $3.4 billion
12-month revenue: $2.2 billion, up 6%
12-month net income: $207 million, up 53%
Year in review: Beckman’s mainstay clinical diagnostics unit, which sells testing gear and supplies to laboratories running tests for doctors, provided cover to the company’s struggling biomedical research division in 2003.
The biomedical research unit, which sells gear to drug, university and medical researchers, saw its business turn downward in late 2002. Biomedical’s 2003 sales were flat, excluding favorable gains from currency exchanges rates, at $651 million in sales, or nearly 30% of Beckman’s total.
Clinical diagnostics sales were up 5% in constant currency terms to $1.5 billion for the 12 months. With the boost from favorable exchange rates, Beckman’s total sales grew 6.5% to $2.2 billion last year. New products helped boost profits, though $50 million in litigation settlements also was behind 2003’s big net income boost.
Beckman also saw a big management change late last year. Brad Garrett, head of the clinical diagnostics unit, was named president in a move that puts him in line behind Chief Executive John Wareham.
What’s ahead: Beckman’s clinical diagnostics business is looking to see sales gains from products released in 2003.
Biomedical research has “weathered the weakness in research capital spending,” Wareham said, and is focused on growing segments such as proteomics, or the science of studying proteins by cell type and organism.
2004 sales could grow up to 8%, depending on currency rates, according to Beckman. Clinical diagnostics is seen growing up to 9%, while biomedical research is seen rebounding with a sales growth rate around 5%. Profits are seen growing by as much as 15% before any one-time items.
Wall Street’s take: Beckman’s shares are up nearly 60% in the past year based on the strong performance of clinical diagnostics and encouraging signs from biomedical research. In March, Wachovia Securities LLC raised its rating on Beckman to “outperform” from “market perform.” Six brokerages have Beckman’s shares at “hold” ratings, while five have it at a “moderate” to “strong buy.”
,Michael Lyster
8. ALLERGAN INC.
Headquarters: 2525 Dupont Drive, Irvine
Employees: 4,930; 2,430 in OC
Business: Specialty drug maker
Market value, as of April 5: $11.3 billion
12-month revenue: $1.8 billion, up 27%
12-month net loss: $53 million, versus $75 million net income
Year in review: Sales of wrinkle-reducer Botox helped drive higher sales, though acquisition charges, writeoffs and other special items led to a loss for the year.
For the year, Botox sales grew 28% to $564 million, with sales to plastic surgeons using the drug for cosmetic procedures making up 40% of the business. Therapeutic uses, for severe muscle disorders and other ailments, made up the balance.
Allergan made two key acquisitions last year.
In November, it bought Sunnyvale-based eye drug hopeful Oculex Pharmaceuticals Inc. for $230 million. Allergan already had a small stake in Oculex, which makes a drug and a biodegradable polymer used to get the drug to the back of the eye.
In May, Allergan paid $260 million to buy Irvine-based Bardeen Sciences LLC, a privately held company that worked with Allergan on an acne pill and three eye drugs.
What’s ahead: Allergan has started 2004 on a cautious note. In the first quarter, the company lowered its profit projections for the quarter and the year.
For 2004, it sees profit before any special items of $360 million, slightly below what analysts had expected at the time. Sales are seen coming in at $1.85 billion to $1.9 billion.
The company also is pressing on with a $60 million expansion of its Irvine campus, including the addition of 200,000 square feet of laboratory space.
Wall Street’s take: Allergan’s shares retreated some after the company’s earnings outlook revision in the first quarter. Most brokerages have the company’s shares at a “buy” rating, including Banc of America Securities, which upgraded the stock in February.
Some analysts think the stock has room to grow, possibly even hit 100, up from around 85 last week. Allergan also was on a list of possible acquisition targets for Johnson & Johnson in a recent BusinessWeek article.
,Michael Lyster
9. BROADCOM CORP.
Headquarters: 16215 Alton Parkway, Irvine
Employees: 2,774; 700 in OC
Business: Communications chipmaker
Market value, as of April 5: $13.2 billion
12-month revenue: $1.6 billion, up 49%
12-month net loss: $960 million, versus $2.2 billion loss
Year in review: The search continues. More than a year after Broadcom’s fiery cofounder and chief executive, Henry Nicholas, quit the company, it’s still being run by former chief operating officer, Alan “Lanny” Ross.
Ross oversaw some big job cuts at Broadcom in the past few years,as many as 600 workers. He trimmed six different business units down to four last fall. Since taking over in January 2003, he’s seen the chipmaker become Orange County’s largest company by market value and earn a place this year on the top 10 list of public companies with sales growth of 49% to $1.6 billion in the past 12 months.
And, despite posting a $960 million loss during 2003, the fourth quarter saw the chipmaker post a profit of $6.1 million, versus a quarterly loss of $1.8 billion a year earlier.
Ross buried the hatchet,at least on the legal front,with rival Intel Corp. last summer. Broadcom agreed to pay Intel $60 million to settle the second half of a long-time court battle that had the companies exchanging patent lawsuits since 2000. As part of the agreement, the companies can’t sue each other for five years.
As an incentive to stay on until a replacement is found, Broadcom recently said it would fully vest all of Ross’ shares if he were still around when the successor is named.
What’s ahead: “We’re looking at deals all the time,” Ross told the Business Journal earlier this year.
Indeed, earlier this year Broadcom made a couple of regulatory filings to set itself up for potential buys.
Broadcom made an “acquisition shelf registration,” which allows it to issue up to 30 million shares to make a buy, and it also filed to pave the way to sell up to $750 million in stock or debt in a public offering for corporate uses.
Storage could be an attractive market for more acquisitions. A year ago, the Irvine chipmaker bought the assets of Santa Clara’s Gadzoox Networks Inc., then made two buys in February: Nashua, N.H.-based RAIDCore Inc. and storage technology patents from Austin, Texas-based Cirrus Logic Inc.
Meanwhile, Broadcom now will be battling with Intel in the chip markets for wireless networking, servers and corporate networking. Consumer electronics is another potential battleground.
Wall Street’s take: Analysts like the company’s efficiency: 49% revenue growth on just 11% employee growth to 2,774 workers in the past year. Shares of Broadcom have surged 226% in the past year to 42 at recent check.
Analysts expect Broadcom to grow sales 50% this year to $2.4 billion
,Mike Mason
10. Apria Healthcare Group Inc.
Headquarters: 26220 Enterprise Court, Lake Forest
Employees: 10,330; 595 in OC
Business: Home healthcare services, medical equipment
Market value, as of April 5: $1.5 billion
12-month revenue: $1.4 billion, up 10%
12-month net income: $115 million, even with a year earlier
Year in Review: In 2003, Apria kept on rolling,rolling up that is.
The company has been doing its part to consolidate the fragmented home healthcare market. Last year, it paid nearly $100 million for 27 businesses. The company said the moves expand its operations in existing markets and bring it into new ones.
Apria provides hospital beds and wheelchairs, as well as breathing therapy such as drug delivery, oxygen tanks and ventilators for use in patients’ homes.
The company also saw growth independent of acquisitions. Apria worked on bettering its profits last year with what it called “productivity initiatives.” In the fourth quarter, selling, distribution and administrative costs fell two percentage points to 53% of sales.
Last year’s Medicare Prescription Drug, Improvement and Modernization Act calls for cutting reimbursement for respiratory therapy drugs used by Apria, something the company said it can live with, in part because of economies of scale gained from acquisitions.
What’s ahead: Apria will have to keep on squeezing out operating gains to stay ahead of Medicare cuts. Sales growth could temper with the loss of Apria’s contract with Gentiva CareCentrix Inc., which steers managed care patients to home healthcare providers. In January, Apria said it couldn’t come to terms with Gentiva. That has Apria projecting sales growth of up to 7% this year, down from last year’s 10% clip. Profits are seen growing by up to 9%.
Wall Street’s take: Apria’s shares are up about 50% in the past year, bouncing back from a big November dip sparked by the passage of Medicare reform. Analysts are concerned about Medicare payment cuts for Apria services, and about the onset of competitive bidding on gear provided by Apria set to start in 2007.
Medicare is about 30% of the company’s business with private insurance making up the rest.
,Michael Lyster
