Newell & Co. now has a stake in B&D's success

August 25, 1991|By Thomas Easton | Thomas Easton,New York Bureau of The Sun

New York -- A management aggressive about product development, cost-cutting and acquisitions, operating in the hardware and housewares field. Sounds like an abbreviated description of Towson-based Black & Decker Corp.

Add in highly successful, though, and it better suits Newell & Co., the Illinois-based mini-conglomerate that recently disclosed an agreement to purchase a 15 percent stake in Black & Decker for $150 million.

Newell? The name probably doesn't ring a bell. It has received almost no national press. Only a couple products sell under the parent company's name, and even the brands it refers to as well-known are, with few exceptions, unrecognizable to all but hard-core hardware/paintware/cookware aficionados. Baker Brush paint sundries, BernzOmatic hand torches and Mirro cookware are some of the more popular labels, but all have a long way to go before they lodge in the American consciousness in the same manner as Coca-Cola -- or even Black & Decker.

Nonetheless, Newell has been among the most remarkable companies in the nation. Its annual growth in sales and profits is more befitting a high-technology start-up with good patents than a company in the mature housewares industry.

In the 1980s, finance, defense and trendy retailers may have captured the public's attention. But among the Fortune 500, Newell, a manufacturer of the most prosaic products imaginable, produced the sixth-highest returns to shareholders. Its annualized share appreciation: 37 percent.

Newell isn't immune to the recession. During 1990, Newell's sales rose by just over 1 percent, excluding divestitures. That's a far cry from its 20-year annual average of 20 percent. But earnings per share were still up almost 19 percent, and return on equity remained above 22 percent. Results for the first half of this year, an awful period for most companies, showed record earnings for Newell, with earnings per share up almost 17 percent.

How has Newell been so successful?

Analysts suggest that Newell correctly forecast the retail industry's consolidation and created systems that the largest companies, such as Wal-Mart and K mart, tend to favor.

Cited most often is not a peculiar twist in the products themselves, though Newell is thought to be a adept packager, but rather its mastery of efficient distribution. It was among the first and most skilled users of what is known in the trade as EDI, for electronic data interchange.

Newell was one of the first home products manufacturers to effectively link major vendors into a computerized order system and has continually refined the process. Now, for example, Newell receives information from Wal-Mart almost as soon as bar codes are read at the sales counter. That triggers immediate reorders and delivery. As a result, inventory of pots and pans turns over 19 times a year, an almost unheard-of rate.

The company's emphasis on fast production and distribution dates back to the turn of the century, when management techniques were stimulated by necessity. Its first production facility, manufacturing curtain rods for variety stores, was located in upstate New York, near the Canadian border, in the tiny town of Ogdensburg. Only a single, erratic railroad served the town. "Transpor tation was terrible," company Chairman William Cuthbert says. "In order to get and hold a major retailer like Woolworth, you had to ship the day you got the order -- always."

Newell remained a small, albeit successful, family-owned firm for decades. Acquisitions tended to be other curtain rod producers, geographically spread throughout the United States and Canada.

In the 1967, two years after leadership passed to current the chief executive, Daniel Cuthbert Ferguson, annual sales were $14 million -- all, essentially, in a single product. He launched an aggressive acquisition strategy, buying more than 40 companies. All were in the blandest of areas: bath scales, home hardware, hand torches and caps for baby food and pickle jars, for instance.

Perhaps the most prominent names were Vice-Grip Pliers, in which Newell acquired 45 percent in 1985; and Anchor Hocking Corp., a glassware maker almost twice Newell's size, purchased in 1987.

After buying a company, Newell launches what it awkwardly calls Newellization: dumping substandard products, improving manufacturing, consolidating headquarters operations and linking distribution with strong central systems. Nothing about the process sounds novel, but what is apparently Newell about it is that the process succeeds so well.

"They've been doing it so many times, it's like a drill on a destroyer," said Alexander Paris, an analyst with Barrington Research Associates. "Everyone knows where to go for battle stations, and they do it faster and faster."

By last year, Newell had over $1 billion in sales -- and there is no suggestion that its appetite or competence is flagging.

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