A Quick Look at OC’s 10 Largest Public Companies
Whether through restructuring, deals or old-fashioned product development, most of OC’s 10 largest public companies improved their financial pictures in a trying 2000. Following the national trends, OC’s financial services giants Fidelity National Financial Inc. and First American Corp. and medical-products maker Beckman Coulter Inc. made solid gains. But even in the hard-hit tech sector, Ingram Micro Inc. and Western Digital Inc. were able to post improved revenue and bottom line numbers.
On the other hand, HMO PacifiCare Systems Inc., drug distributor Bergen Brunswig Corp. and CKE Restaurants Inc. struggled. But for one, Bergen, the end is in sight,it is due to be acquired by Pennsylvania-based AmeriSource Health Corp. If the deal goes through, Bergen will end a long run as one of the county’s largest public companies.
The 12-month revenue and income figures below, as with the full list that begins on page 44, are for the four company quarters that ended on or nearest Dec. 31.
1) INGRAM MICRO INC.
Headquarters:
1600 E. St. Andrew Place, Santa Ana
Employees:
15,400; 3,500 in OC
Business:
Distributor of computer products
Market capitalization, as of March 29:
$1.8 billion
12-month revenue:
$30.7 billion, up 9%
12-month net income:
$226 million, up 23%
Year in review:
And then there were two. With bankruptcy filings by key rivals, Ingram Micro Inc. and Clearwater, Fla.-based Tech Data Corp. emerged as the two dominant computer products distributors last year. The crown goes to Ingram Micro, with $30 billion in annual sales, vs. $20 billion for Tech Data. To survive, Ingram Micro further reinvented itself last year, expanding product offerings and services under CEO Kent Foster, who joined a year ago. The company was able to eke out more profits in an industry where making a penny or less on each dollar of sales is the norm.
What’s ahead:
Ingram Micro has its work cut out, with a global slowdown in sales of computers and networking gear. Last week, the company said it plans to close its Fullerton plant and one in Ohio, resulting in 470 lay offs, including 42 in OC. In January, longtime executive Michael Grainger was named president and charged with boosting sales growth and profits, even as the industry climate turns against Ingram Micro. To do so, Ingram Micro needs to cut costs and take market share. New customers could be easy to come by from troubled rivals, but Tech Data also has streamlined and is bent on growing in the downturn.
Wall Street’s take:
Shares of Ingram Micro enjoyed a steady climb in December and January, only to have the wind knocked out of them in late February after the company warned about profits. For now, they’re in a holding pattern. Still, analysts weren’t surprised by Ingram Micro’s warnings amid the din of bad news from computer and other electronics makers. For the year, analysts expect Ingram Micro to earn $1.03 a share, vs. $1.52 a share last year.
2) BERGEN BRUNSWIG CORP.
Headquarters:
4000 W. Metropolitan Drive, Orange
Employees:
10,451; 763 in OC
Business:
Wholesale pharmaceutical distributor
Market capitalization as of March 29:
$2.27 billion
12-month revenue:
$23.2 billion, up 5%
12-month net loss:
$746.1 million, vs. net income of $77.3 million
Year in review:
Bergen retooled last year after taking a pounding on Wall Street in 1999. The company sold Stadtlander Drug Co. to CVS Corp. for $120 million, well below the $400 million it paid Counsel Corp. for the specialty pharmaceutical distributor. Bergen also sold its Bergen Brunswig Medical Corp. subsidiary to Cardinal Health Inc.’s Allegiance Corp. for $181 million and took one-time charges of nearly $600 million in its fiscal fourth quarter.
What’s ahead:
Last month, AmeriSource Health Corp. of Valley Forge, Pa., announced plans to buy Bergen in a $5 billion stock and debt deal that would create a company with approximately $35 billion in annual revenue. The deal requires regulatory approval,the Federal Trade Commission quashed Bergen’s bid to merge with Cardinal in 1998. OC stands to lose its second-largest public company by sales in the deal. AmeriSource does plan to maintain Bergen’s Orange operation as a West Coast management center.
Wall Street’s take:
Shares of Bergen have been on an up trend since July and are now trading in the high teens. Even before the AmeriSource news, analysts and investors had indicated they see better things ahead for the company. As part of AmeriSource, Bergen will be competing directly with onetime merger partner Cardinal Health Inc., which recently bought Bindley Western Industries Inc. to form the nation’s biggest drug wholesaler,a status AmeriSource and Bergen are set to contest. Analysts are wary of regulatory hurdles but give the deal good odds.
3) PACIFICARE HEALTH SYSTEMS INC.
Headquarters:
3120 Lake Center Drive,
Santa Ana
Employees:
8,800; 4,386 in OC
Business:
Managed healthcare services
Market capitalization as of March 29:
$808 million
12-month revenue:
$11.5 billion, up 15%
12-month net income:
$161 million, down 42%
Year in review:
PacifiCare saw its business landscape shift from its signature fixed-payment contracts to one in which health plans share costs with doctors and hospitals. PacifiCare and Orange-based St. Joseph Health System in the fall agreed to dissolve their longtime pact over risk sharing and rate increases. Executive suite upheaval also took place when Robert O’Leary resigned after only three months upon warning of disappointing third-quarter earnings.
What’s ahead:
Under new Chief Executive Howard Phanstiel, PacifiCare wants to decrease its reliance on Medicare, which accounts for 60% of its profits and balance sheet. A preferred-provider organization and a Medicare supplemental insurance offering are among items in the works. In addition, Phanstiel is interested in expanding into areas not traditionally covered, including “lifestyle items” like sexual dysfunction treatments, in a bid to lure more enrollees.
Wall Street’s take:
PacifiCare’s stock, which bottomed out around 10 in late October, has mounted a comeback in recent weeks. The stock was trading around 35 in mid-February, close to where it was when the company warned that higher costs were eroding its profits. It pulled back some in March. For 2001, analysts expect PacifiCare to earn $2.29 a share, vs. $4.51 a year ago.
4) FLUOR CORP.
Headquarters:
One Enterprise Drive,
Aliso Viejo
Employees:
22,205; 2,500 in OC
Business:
Engineering and construction
Market capitalization as of March 29:
$3.5 billion
12-month revenue:
$10 billion, down 12%
12-month net income:
$123.9 million, up 19%
Year in review:
Big news last year for Fluor as it spun off Massey Coal, its coal-mining business. In March, Fluor and IBM Corp. formed an e-commerce capital-goods procurement venture,Irving, Texas-based TradeMC Inc.,designed to concentrate purchases through Web-enabled strategic sourcing agreements. Also, Alan Boeckmann was appointed president and chief operating officer of Fluor. The company also made an investment in San Francisco-based Citadon Inc., an Internet-based project management platform service provider. Fluor has launched a third Web venture, Atlanta-based GlobEquip, which will be an online agent selling heavy equipment to high-demand regions worldwide.
What’s ahead:
Fluor is pursuing power-plant construction in Mexico,a tantalizing prospect considering President George W. Bush’s push for liberalization of electricity flows among NAFTA countries. The company also is pursuing power plant construction projects in New Jersey and Virginia, as well as the Dominican Republic. Company officials expect opportunities in Asia, Mexico and other global markets to help offset the effects of the U.S. economic slowdown.
Wall Street’s take:
Share prices of Fluor rose sharply in February to reach a high of 47.50 early last month following its first-quarter and full-year earnings outlook announced March 6. Analysts’ forecasts match Fluor’s outlook for 2001 earnings per share of $2. Salomon Smith Barney is forecasting 2002 earnings of $2.40 per share, and set a stock price target of $46. “Fluor is now a pure play on what we believe is the beginning of an upturn in the engineering/procurement/construction cycle,” analyst Leone Young said.
5) First American Corp.
Headquarters:
1 First American Way,
Employees:
20,346; 1,732 in OC
Business:
Title insurance
Market capitalization, as of March 29:
$1.66 billion
12-month revenue:
$2.9 billion, down 2%
12-month net income:
$82 million, up 148%
Year in review:
First American’s local roots are as deep as those of Orange County itself. The title insurer started in 1889, when OC split off from Los Angeles County. Last year, the company dropped “Financial” from its name to reflect its move into new services such as pre-employment screening and consumer credit. Still, title insurance is big business: First American last year backed 705 properties of ExxonMobil Corp. in a deal worth $880 million.
What’s ahead:
As with rival Irvine-based Fidelity National Financial Inc., First American has been riding a wave of refinancing and home sales spurred by lower interest rates. But the company’s shares dipped recently on a strong consumer confidence report that led some investors to believe future interest-rate cuts were less likely. In contrast to Fidelity’s huge Chicago Title deal, First American has been pursuing a strategy of acquiring smaller local and regional firms to expand its core title business and branch into new areas. More deals could be in the works: the company recently promoted Thomas R. Wawersich to vice president of mergers and acquisitions.
Wall Street’s take:
First American shares saw a nice fourth-quarter run-up but since have pulled back on interest-rate concerns. Analysts rate the company’s shares a moderate to strong buy. First American is expected to earn $1.95 a share this year, vs. $1.08 a share a year earlier.
6) Fidelity National Financial Inc.
Headquarters:
17911 Von Karman Ave., Irvine
Employees:
17,000; 500 in OC
Business:
Market capitalization as of March 29:
$1.83 billion
12-month revenue:
$2.7 billion, up 103%
12-month net income:
$108.3 million, up 53%
Year in review:
In March 2000, Fidelity National completed its buy of Chicago Title Corp., resulting in a doubling of revenue. The combined company writes about a third of all title policies. Based on annual revenue, Fidelity ranks just behind Santa Ana-based First American Corp., the title industry leader. Last spring, Fidelity saw its Micro General Corp. unit move from the over-the-counter exchange to Nasdaq. Micro General offers financial and real estate e-commerce systems. In January, Fidelity raised $256 million in a stock offering to pay down debt.
What’s ahead:
“Our merger with Chicago Title is complete. We are optimistic about 2001 and our combined team is focused on increasing market share, improving operating efficiencies and driving earnings higher this year,” said Chairman and Chief Executive William P. Foley II in February. Like other title insurers, Fidelity has seen a surge in business sparked by lower interest rates. How long the refinancing and housing boom will last is the question. In March, Fidelity and First American shares plunged on an upbeat consumer confidence report, which some investors feared could stifle rate cuts. “We remain excited about our momentum and confident in our earnings potential for full-year 2001,” Foley said in late March. A few weeks ago, Fidelity filed to offer up to $470 million in mixed securities to raise money for debt reduction, working capital, investments in or loans to subsidiaries and acquisitions.
Wall Street’s take:
From November to January, Fidelity’s shares climbed 60%. They’ve contracted in recent weeks over uncertainty about interest rates. Merrill Lynch & Co. recently changed its rating of Fidelity from accumulate to a near-term buy. For the year, analysts expect Fidelity to earn $3.04 a share this year, vs. $2 a year earlier.
7) CONEXANT SYSTEMS INC.
Headquarters:
Newport Beach
Employees:
2,900; 2,700 in OC
Business:
Semiconductor manufacturer
Market capitalization as of March 29:
$2.19 billion
12-month revenue:
2.004 billion, up 21%
12-month net loss:
$442.33 million, versus earnings of $121.88 million last year
Year in review:
The limp Conexant carried into 2000 may have turned into full-on dead leg. Starting the year watching competitors Broadcom Corp. and PMC Sierra Inc. chip away at the market share of its most lucrative business, Conexant ended the year as its customers,Cisco Systems Inc., Lucent Technologies Inc. and others,delayed ordering some equipment until they had sold off their own excess. The move left Cisco,and others,struggling to breathe. To meet its challenges, Conexant plans to spin off its Internet infrastructure business to separate it from its “old-line” business selling dial-up modem chips.
What’s ahead:
Company executives recently told investors its revenue would fall as much as 40% below its initial guidance. To boot, 1,500 full-time employees,about 20% of its work force, were shown the door and three plants will be idled in the coming quarter. The company also plans to ditch its digital imaging chip business and is looking for a buyer. The result of all these efforts: savings of $200 million a year,after a $50 million one-time charge associated with the restructuring. Management says the company should be profitable by the end of the year.
Wall Street’s take:
Conexant’s stock price has steadily declined over the past year, not even giving investors the benefits when Wall Street was hyping communications chips. Most major brokerages have downgraded the stock after Conexant issued two warnings that its business wouldn’t be up to snuff in coming quarters. According to analyst estimates, analysts expect Conexant to be profitable by September 2002.
8) Western Digital Corp.
Headquarters:
20511 Lake Forest Drive,
Lake Forest
Employees:
8,002; 700 in OC
Business:
Disk drive manufacturer
Market capitalization as of March 29:
$756 million
12-month revenue:
$1.9 billion, down 16%
12-month net loss:
$98.22 million, vs. $337 million
Year in review:
If you can’t play with the big toys, you’ve gotta get out. At least that’s how it seemed when disk drive maker Western Digital decided to ditch its business selling disk drives for large computers, opting to focus on personal computer storage instead. Western Digital enlisted longtime executive Matt Massengill to help turn the company around and renew its focus, but challenges remain. The company still reported a loss, excluding one-time gains, of $8.8 million for its second quarter ended Dec. 29. Western Digital saw operating losses totaling $19.4 million for its new business ventures, not helping matters.
What’s ahead:
Selling computers,or the products that go into computers,isn’t the best business in technology right now. Western Digital’s focus on sales to PC makers forces it to sell a large volume of drives,its key focus in 2001. Company executives say they will look to trim costs throughout Western Digital for the rest of the calendar year,they’ve already closed plants and moved the corporate headquarters to a smaller facility. If the computer business picks up in the second half, as some analysts expect, Western Digital could be positioned to ride out the industry’s down cycle.
Wall Street’s take:
Western Digital shares have traded in tandem with that of competitor Maxtor Corp. over the past year, and are off nearly 50% from highs a year ago as investors fled in the technology downdraft. Still Western Digital has received a little recognition, with at least one major brokerage raising its estimates for the company while maintaining a neutral rating. Overall, it doesn’t seem that Wall Street expects too much from Western Digital. Analysts expect the company to lose 51 cents a share for the fiscal year, vs. $2.22 in red ink per share a year ago.
9) BECKMAN COULTER INC.
Headquarters:
4300 N. Harbor Blvd.,
Fullerton
Employees:
9,616; 2,245 in OC
Business:
medical diagnostic, laboratory
products
Market capitalization as of March 29:
$2.3 billion
12-month revenue:
$1.9 billion, up 4%
12-month earnings:
$125.5 million, up 18%
Year in review:
Beckman saw its late-1997 acquisition of Coulter Corp. pay off in 2000 with higher profits and a strong year on Wall Street. “It has worked,” Chief Executive John Wareham said. “This is a real combined company.” A result of ongoing streamlining, Beckman eked out a double-digit profit gain on a modest 4% increase in sales. In November, Beckman signed a deal worth $35 million annually with Premier Inc., a San Diego-based alliance of hospitals and health systems. Beckman also signed a $30 million deal with lab operator Quest Diagnostics Inc., owner of Nichols Institute Diagnostics in San Juan Capistrano. In the fall, Beckman shares got a jolt from rumors that Abbott Laboratories Inc. might make a bid for the company, something that hasn’t materialized.
What’s ahead:
Beckman expects sales to rise 5% to 7% and earnings to grow 12% to 15% in 2001. In March, the company reorganized into three new divisions that Wareham expects to take shape in coming months. The units are set to focus on DNA sequencing and other testing. Beckman is looking to expand sales to core markets: labs, drug makers and research institutes. The company also is looking to increase business with existing customers by adding more functions to lab-test workstations. Debt reduction is another task,the company owed $863 million as of Dec. 31, and is reducing it by about $100 million a year.
Wall Street’s take:
In the wake of the technology meltdown, Beckman and other medical firms have become investor darlings. Shares surged 60% last year and have held their own in this year’s turbulent market. In March, Banc of America Securites started coverage of Beckman with a buy rating. Analysts expect the company to earn $2.22 a share this year, up from $2.01 in 2000.
10) CKE Restaurants Inc.
Headquarters:
401 W. Carl Karcher Way, Anaheim
Employees:
61,000; 16,118 full time; 1,213 in OC
Business:
fast-food restaurants
Market capitalization as of March 29:
$120.7 million
12-month revenue:
$1.7 billion, down 3%
12-month net loss:
$107.7 million, vs. net income of $46.21 million a year ago
Year in review:
Some guys may have starved without them in the past, as the Carl’s Jr. ad goes, but these days it seems more guys are eating at rival burger joints. Hurt by slower sales, CKE has been struggling to make debt payments and is selling off company-owned stores. In September, Tom Thompson stepped down as chief executive, replaced by Andrew Puzder, chief executive of the company’s Hardee’s chain. CKE has reported three consecutive quarters of losses attributed to the struggling Hardee’s. The company made headway last year on whittling down its long-term debt, which had grown from $138.7 million in 1998 to $522.9 million in 1999. The company spent most of the past year selling some 600 stores,mostly Hardee’s units,to franchisees, and as of Dec. 26 the company’s debt was $219 million.
What’s ahead:
Last month CKE announced that buyout firm Jacobson Partners plans to buy its 125-unit Taco Bueno division for $72.5 million. CKE plans to keep cutting debt and selling restaurants in a bid to be a more franchised operation. Improving operations at Hardee’s is a priority, but remodeling efforts have been scaled back, as are efforts to turn Carl’s Jr. stores into dual outlets with the Green Burrito chain.
Wall Street’s take:
Shares of CKE have been declining from their 1998 high of 44 and took a steeper turn in the past year. These days, they remain at about the 2 level. Analysts are expecting CKE to lose 46 cents per share for the year, vs. a profit of 39 cents a share last year. Still, the impending economic slowdown may prove to be good for fast-food companies as some consumers may opt for cheaper meals.
