TOP OF THE HEAP – Special Report
Snapshots of OC’s 10 Largest Public Companies
1) INGRAM MICRO INC.
Headquarters: 1600 E. St. Andrew Place, Santa Ana
Employees: 14,500; 2,300 in OC
Business: Computer products distributor
Market capitalization, as of April 8: $2.4 billion
12-month revenue: $25.2 billion, down 18%
12-month net income: $6.7 million, down 97%
Year in review: Trimming has its price. Grappling with the downturn in technology, Ingram Micro spent the year driving down costs with layoffs and consolidations. It also spent 2001 in a price war with Clearwater, Fla.-based rival Tech Data Corp. The two are the dominant computer products distributors with Ingram at $25 billion in annual sales vs. $17 billion for Tech Data. The price war showed up in results: Gross profit margin declined to 5.25% in the most recently reported quarter, compared to 5.46% in the same quarter last year. To buoy results, Ingram Micro further reinvented itself last year, expanding product offerings and services under Chief Executive Kent Foster.
What’s ahead: Much of the dirty work is done and Ingram is ready to reap the benefits. The company recently said it expects its restructuring to result in $10 million in annual savings and that benefits to the company’s profits already are being felt. In the past six months, the company has bolstered its products and services, including easier lending options for clients, more high-end security products and expanded technical support. Ingram Micro is hoping to come by new customers since Tech Data upset some of its customers when it changed its billing method.
Wall Street’s take: Shares of Ingram Micro enjoyed a steady climb from September to January, rising about 24% before slipping 10% this year to a recent close near 16. That came after the company reported fourth quarter profits that declined 90%, including special items, from the year ago period. The extent of the decline surprised analysts, who had hoped sales of personal computers and components would rebound. The Sept. 11 attacks only worsened the situation. Now there’s nowhere to go but up. For the year, analysts expect Ingram Micro to earn 48 cents a share, vs. 32 cents a share last year.
2) PACIFICARE HEALTH SYSTEMS INC.
Headquarters: 3120 Lake Center Drive, Santa Ana
Employees: 7,600; 3,700 in OC
Business: Managed healthcare services
Market capitalization, as of April 8: $621 million
12-month revenue: $11.8 billion, up 2%
12-month net income: $19 million, down 88%
Year in review: PacifiCare had an up-and-down year as officials worked to turn around the company after a rough 2000. Two years ago, the company saw an executive suite upheaval and a change of its business landscape from its signature fixed-payment contracts to one in which health plans absorb cost increases along with doctors and hospitals.
In 2001, PacifiCare launched a preferred-provider organization and a Medicare supplement product, along with raising premium rates on some of its business and cutting more than 64,000 Secure Horizons Medicare HMO members from its rolls.
PacifiCare also had a roller-coaster relationship with Wall Street. The company’s shares got a bounce in April when it said its full-year and first-quarter earnings would come in at the higher end of analysts’ estimates. Later in the year, however, some analysts began questioning PacifiCare’s business strategy after it reported two earnings bombs within a nine-month period.
What’s ahead: In January, PacifiCare kicked off a “profit improvement” program that ultimately could save the company $90 million a year. PacifiCare is expected to shed some 1,300 jobs across the company. The company also has reorganized several of its operating units, including bringing its senior programs under one umbrella. A move of corporate headquarters from Santa Ana to Cypress is on the plate for later this year. PacifiCare also is spending some $20 million on a branding campaign designed to position itself as a full-range healthcare service provider, not just an HMO.
Wall Street’s take: As noted, PacifiCare’s relationship with Wall Street has been rocky of late. Still, analysts expect a payoff from changes at the company. PacifiCare is projected to earn $3.28 a share in 2002, vs. $1.68 last year.
3) FLUOR CORP.
Headquarters: One Enterprise Drive, Aliso Viejo
Employees: 51,313; 3,370 in OC
Business: Engineering and construction
Market capitalization, as of April 8: $3.4 billion
12-month revenue: $8.9 billion, down 10%
12-month net income: $19.4 million, down 84%
Year in review: Alan Boeckmann took over as chief executive at Fluor early this year, succeeding Philip Carroll. Boeckmann took over the helm of a company that saw its stock value fluctuate wildly throughout 2001. Strong demand for power plants, refineries and other projects in the energy and chemical sector helped boost revenue, though it was down from a year earlier because of downturns in telecommunications and manufacturing, where Fluor also does work. The split off of Massey Energy Co. as a separate public company early last year added to a decline in both sales and profits. Earnings from continuing operations actually were up 23% to $143 million vs. the year-ago period. The 2001 profit figure also includes a $108 million loss from discontinued operations, mainly the cost Fluor incurred dropping its heavy equipment sale and rental business.
What’s ahead: In the past few months Fluor has won several power plant contracts, and work in that sector is set to continue into 2003, albeit not as strongly as last year. Fluor is angling for rebuilding work in Afghanistan, but any contracts are a ways off yet. In March, Fluor won a $125 million contract to build a new Ritz-Carlton resort in the Cayman Islands.
Wall Street’s take: Fluor shares hit near 60 in May as investors gave the company a nod for spinning off Massey, a coal-mining business. The Western energy crisis spurred power plant work for Duke/Fluor Daniel, a joint venture. Later in May, the company’s share price began a steady retreat to around 40, where it stayed the remainder of the year due to concerns about electricity rate caps discouraging power plant building. In January the stock plummeted to 30, taking a hit because of the collapse of Enron Corp. Investors feared the bankrupt Houston energy trader would cancel contracts with independent power producers. The stock in the past two months has rebounded sharply to about 41 in anticipation of an economic upturn. Also, Wall Street grew upbeat about Fluor after its 2001 year-end results in February, when the company reported it had met expectations and also managed to turn a profit in a tumultuous fiscal year. Analysts expect Fluor to earn $2.08 per share for the year, up from $1.91 per share in 2001.
4) FIDELITY NATIONAL FINANCIAL INC.
Headquarters: 17911 Von Karman Ave., Irvine
Employees: 17,600; 500 in OC
Business: Title insurance
Market capitalization, as of April 8: $2.4 billion
12-month revenue: $3.9 billion, up 41%
12-month net income: $305 million, up 182%
Year in review: Fidelity National probably couldn’t have made a better decision than buying Chicago Title Corp. Last year, the company reaped the benefits of the 2000 merger. Net income almost tripled, while revenue was up 41%. This was on top of a 103% gain in revenue and 53% boost in profit in the prior year. The combined company,the nation’s largest title insurance company, writing a third of all title policies,benefited from the boom in home sales and refinancing. Based on its $3.9 billion in 2001 revenue, Fidelity ranked No. 426 on the Fortune 500. The company went public in 1987 with yearly revenue of less than $100 million. It has, through internal growth and acquisitions, grown at an annual rate of 28%. In 2001, the company also raised $250 million through a 10-year note offering.
What’s ahead: While cross-county rival First American Corp. in Santa Ana (see No. 5, below) has made a concerted effort to diversify beyond title insurance, Fidelity is focusing on how to make the most of the business. Core competency seems to be the mantra at the corporate headquarters. This year, the company launched Property Insight to improve the speed and efficiency of real property title insurance underwriting by creating a nationwide system for standardizing and automating title research for the four title companies it owns: Fidelity Title, Chicago Title, Ticor Title and Security Union. A lot will depend on how much benefit it derives from sticking to what its knows best and whether it takes a hit from the expected fall in refinancing activity and a possible decline in home sales as interest rates creep up.
Wall Street’s take: Fidelity National has seen a nice run after dipping into the low 20s in November. Its stock price has gained more than 20% since. For this year, analysts expect Fidelity to earn $3.29 a share, vs. earnings of $3.54 per share a year earlier. The decline in projected earnings is 7%; analysts expect First American to post a 24% drop in earnings this year.
5) FIRST AMERICAN CORP.
Headquarters: One First American Way, Santa Ana
Employees: 22,413; 2,155 in OC
Business: Title insurance, financial services
Market capitalization, as of April 8: $1.6 billion
12-month revenue: $3.75 billion, up 28%
12-month net income: $167 million, up 103%
Year in review: First American’s roots are deep in Orange County. The title insurer started in 1889, when OC split off from Los Angeles County. But the company that started as a title insurer today is a diversified financial services company. Title insurance still accounts for 72% of the company’s revenue but only 44% of its income before taxes. In 1999, the company dropped “Financial” from its name to reflect its move into new services such as pre-employment screening and consumer credit, which contribute more to its bottom line than the title business.
Earlier this year, the company acquired a 33% equity stake in Irvine Technology Corp., an Irvine-based software development and network services company. Among its other non-title-related acquisitions was that of Sacramento-based Fusion MLS LLA, a provider of Internet-based multiple listing service software. And in October it acquired Hickory, N.C.-based e-fin LLC, a privately held provider of online financing services to automobile dealers. The objective: e-fin is set to become a part of Credit Online Inc., the First American unit that develops and markets technology for electronic links between auto dealers and lenders. The company also formed a strategic partnership with Aon Corp. to market First American insurance products.
What’s ahead: As with rival Irvine-based Fidelity National Financial Inc. (see No. 4, above), First American has benefited for the past couple of years from the boom in home sales and refinancing. But the performance of its stock has been lackluster. A year ago, its market capitalization was around $1.7 billion. In the next 12 months, the company’s value dropped by about 10% to around $1.5 billion. Analysts feel that with interest rates having bottomed, the refinancing boom is more or less over and even home sales could have peaked. First American is more diversified today, but its profitability and revenue growth depend on whether its strategy of acquiring small companies and integrating them pays off.
Wall Street’s take: First American shares had a nice run-up in the fourth quarter and even in the first quarter. But the gains have just restored First American stock to its pre-Sept. 11 level. The company is expected to earn $1.78 a share this year, vs. $2.35 a year ago.
6) Western
Digital Corp.
Headquarters: 20511 Lake Forest Drive, Irvine
Employees: 9,400; 700 in OC
Business: Disk drive maker
Market capitalization, as of April 8: $1.3 billion
12-month revenue: $2 billion, up 2%
12-month net loss: $34 million, vs. $98 million a year ago
Year in review: One year can make all the difference. Since Matt Massengill took over Western Digital two years ago from longtime chief Charles Haggerty, analysts say he’s done a masterful job stopping losses and finding markets beyond personal computers for the company’s drives. While the company still reported a loss for 2001, it’s notable the company reported its first profitable quarter in three years in January and that its once-beleaguered drive business has been profitable for six straight quarters. In January, the company reported a $9.2 million profit, before items, on $575 million in sales. Western Digital also closed a deal to purchase a 155,000-square foot hard-drive manufacturing facility in Thailand.
What’s ahead: Video games could save the disk-drive star. Western Digital hopes to duplicate its success reviving the drive business in its deal to supply Microsoft Corp. with drives for its popular Xbox game console. With Microsoft estimates topping 5 million Xbox consoles to be sold this year, it could be a potentially lucrative deal for Western Digital. In the meantime, Massengill and his lieutenants say they’re focusing on keeping costs low and finding more markets for their drives.
Wall Street’s take: For the better part of last year, Western Digital shares took a dip, declining nearly 50% to a September low. But the shares since have jumped 204% to a recent close near 7. At least one influential Wall Street brokerage, Morgan Stanley Dean Witter & Co., upgraded the company’s shares twice in the second half of the year. Wall Street expects Western Digital to earn 17 cents a share this year vs. 6 cents a share last year.
7) BECKMAN
COULTER INC.
Headquarters: 4300 N. Harbor Blvd., Fullerton
Employees: 9,990; 2,340 in OC
Business: Medical diagnostic and laboratory products
Market capitalization, as of April 8: $3.2 billion
12-month revenue: $1.98 billion, up 5%
12-month net income: $138 million, up 10%
Year in review: Beckman, which provides research and testing gear to hospitals, clinics, drug makers and schools, was a standout in 2001,”a hard-earned success,” according to Chief Executive John Wareham. New products and some big hospital pacts pushed up sales and profits. In the first quarter of 2001, Beckman signed a $39.5 million deal to provide diagnostic gear and supplies to 60 U.S. hospitals. In the fourth quarter of 2000, Beckman signed $41.3 million worth of supply deals with healthcare providers. The company’s push: automation. Robotic and genetic analysis products led growth last year, rising 37% to about 10% of sales. Reagents and other supplies make up the bulk of revenue. Last spring, the company reorganized itself into three divisions: life-science research, specialty testing and clinical diagnostics. In November, Beckman detailed plans for a $225 million note offering to repay existing debt.
What’s ahead: Beckman expects 2002 sales to grow 7% to 8% and profit to rise 18% to 20%. The company’s operating profit margin is pegged at 13% of sales. In March, Beckman expanded a pact with hospital buying group Novation that’s expected to generate $144 million in revenue this year. In the fourth quarter, the company signed supply deals expected to generate $196 million in revenue through five years. The company plans to spend $65 million to $80 million this year paying down debt, which stood at $760 million as of Dec. 31. Look for a continued push in automation products and specialty testing gear for molecular diagnostics and other areas. In March, Albert Ziegler, clinical diagnostics president, announced plans to retire by year’s end. The search for a replacement is on.
Wall Street’s take: A profitable healthcare company, Beckman is a darling these days. Shares are up about 20% so far this year and more than 40% from a year ago. Half of the analysts who follow the company rate it a “strong buy.” For the year, analysts expect Beckman to earn $2.57 a share, up from $2.21 a share in 2001.
8) ALLERGAN INC.
Headquarters: 2525 Dupont Drive, Irvine
Employees: 6,436; 2,200 in OC.
Business: Specialty drugs and services
Market capitalization, as of April 8: $7.8 billion
12-month revenue: $1.7 billion, up 7%
12-month net income: $225 million, up 5%
Year in review: Allergan had a solid 2001, featuring the rollout of new products and continued growth in sales of its flagship drug. Among other things, the specialty pharmaceutical company rolled out Lumigan, a new drug for treating glaucoma. Allergan Chief Executive David Pyott, in describing Lumigan, said it had “the characteristics of a product with great potential” and noted that it possibly could have fewer side effects than other drugs for the eye ailment. Allergan saw sales of its Botox neurotoxin rise 29% last year. Among other things, Botox has continued to be popular as an “off-label” wrinkle-removing treatment in the cosmetic surgery market. Allergan also received regulatory approval for its Tazorac cream as a topical treatment for facial acne.
What’s ahead: Allergan is gearing up to spin off its ophthalmic surgery and contact lens business into a separate, publicly traded company called Advanced Medical Optics Inc. Allergan, in federal filings, has said it expects to spin off Advanced Medical Optics by July 1. Allergan has said that it wants to spin off what will become Advanced Medical Optics in order to allow the management of each company to focus on the opportunities specific to its own business. Allergan has started building a 172,000-square-foot, three-story research and development facility on its Dupont Drive corporate campus. That building is part of a $70 million expansion project. Additionally, Allergan awaits word from the Food and Drug Administration on whether it will receive approval to market Botox for cosmetic use. Analysts have indicated in published reports that Allergan has a multimillion dollar advertising campaign ready to launch upon approval.
Wall Street’s take: Allergan shares shot to as high as 90 in June, but have leveled off since and have traded in the 60s and 70s in the most recent weeks. Earlier this year, analysts noted that the healthcare sector, including Allergan, had an excellent 2000, which put some downward pressure last year. For the year, analysts expect Allergan to earn $2.30 a share, compared to $1.68 a share last year.
9) STANDARD
PACIFIC CORP.
Headquarters: 15326 Alton Pkwy., Irvine
Employees: 1,056; 200 in OC
Business: Homebuilder
Market capitalization, as of April 8: $952 million
12-month revenue: $1.38 billion, up 5%
12-month net income: $111 million, up 11%
Year in review: Homebuilder Standard Pacific Corp. saw a solid 2001, finishing 4,017 homes in California and other Western states, up 8% from 2000. Net income for the year was a record $111.1 million, vs. 100.1 million in 2000. The year saw the fruits of Standard Pacific’s five-year geographical diversification effort, as nearly 50% of the homes delivered were outside of California,in Arizona, Texas and Colorado,compared with 20% in 1996. So far this year, it has been the same only more so. The company reported a record number of orders in the first quarter, 1,622, with 677 of those coming in March. The company’s share price has reflected the financial performance. After a first-quarter slide last year from the 30s to the high teens as the market took a general tumble, Standard Pacific has climbed steadily back and has been again above 30 in recent weeks. A major kudo during the year: Forbes singled out Standard Pacific as the homebuilder with the highest earnings per share growth rate in the past five years, as part of the magazine’s Platinum 400 rankings.
What’s ahead: Standard Pacific is expanding into the South Florida market with two first-quarter acquisitions. Standard agreed to acquire Orlando-based Colony Homes for about $29 million in cash and stock plus the assumption of debt. Standard also will acquire all of the stock of Westbrooke Acquisition Corp. in Miami, Florida, a unit of Newmark Homes Corp. Standard will pay $41 million in cash plus $54 million in debt for the company. Standard Pacific chief executive Stephen Scarborough said he expects the company to continue its growth mode. “Looking ahead, we are particularly excited about the number and quality of our upcoming new communities. We have 35 to 40 new openings scheduled for the first half of the year, which generally represents the peak selling season,” he said.
Wall Street’s take: A profitable homebuilder, Standard is receiving strong reviews from Wall Street. Although its earnings were off 39% for the first quarter, Wall Street analysts continue to consider the stock a solid buy. One-third of the analysts who follow the company consider it a strong buy, one third deem it a buy and one third consider it a hold. Analysts predict that Standard’s earnings will suffer a bit in 2002, off 15%, but will make a strong recovery in 2003, up 23%. For the year, analysts expect Standard to earn $3.08 a share, and $3.79 a share in 2003.
10) Apria Healthcare Group Inc.
Headquarters: 26220 Enterprise Court, Lake Forest
Employees: 9,260; 633 in OC
Business: Home healthcare services, equipment
Market capitalization, as of April 8: $1.4 billion
12-month revenue: $1.1 billion, up 12%
12-month net income: $72 million, up 26%
Year in Review: Things started looking up for Apria in 2001. After two years of restructuring, including layoffs and paying down debt, the company laid claim to a turnaround last year. Two months ago, Larry Higby, Apria’s president and chief operating officer since late 1997, took over as chief executive from Philip Carter, who led a revival of the company in the past four years. In August, Apria’s biggest shareholder, La Jolla-based turnaround investor Relational Investors LLC, sold most of its stake in the company. Carter, who was allied with Relational, came to Apria in 1998, some three years after it was created from the combination of Abbey Healthcare Group Inc. and Homedco Group Inc. In the fall, Apria relocated from Costa Mesa to Lake Forest’s Pacific Commercentre after it said it couldn’t get the terms it wanted to renew its previous lease.
What’s ahead: “We don’t plan any immediate short-term changes in the strategy because it’s one I helped develop,” Higby said upon assuming the chief executive’s role. Look for more internal growth, acquisitions and cost cutting. The company has fodder for deals, including a market value of $1.4 billion at recent check and a $400 million line of credit opened in July. Last year, the company folded in about 14 acquisitions of various sizes, all of which were financed internally.
Wall Street’s take: After a big runup in 2000, Apria’s shares have traded in the mid-20s for about a year now. So far in 2002, the stock is flat. Investors sold off shares on word of Carter’s departure, though analysts and others said the move was expected. Apria’s shares since have regained ground. For the year, Wall Street expects Apria to earn $1.68 a share, up from $1.32 last year.
