Back From The Brink

March 05, 1995|By Ross Hetrick | Ross Hetrick,Sun Staff Writer

After more than a decade of management and financial turmoil that ravaged a once-premier Baltimore company, Sweetheart Cup Co. is coming back, and in more ways than one.

It has posted its first annual profit in five years. Its net worth has climbed out of the hole. Sales are rising.

And the successor of the old Maryland Cup Co., which has had operations in the Baltimore area since 1920, may be returning home to Owings Mills.

Sweetheart, the nation's largest maker of plastic and paper cups, plates, cutlery and ice cream cones with $845.5 million in annual sales, turned a profit of $9.4 million in the fiscal year that ended Sept. 30 -- its first since becoming an independent company again in 1989.

Sales are up by 7 percent for the most recent quarter and shareholders' equity, in a dramatic reversal, now stands at $110 million.

For its new owner -- American Industrial Partners Capital Fund L. P. (AIP), which took over in August 1993 -- the upturn is just the start. Now, AIP is intent on boosting profits and further shrinking the work force -- by as much as 1,500 -- with the ultimate goal of spinning a healthy Sweetheart off in a public stock offering in four or five years.

"We need to establish a consistent performance improvement rate over a period of time, so we have demonstrated performance," said William F. McLaughlin, president and chief executive of Sweetheart who calls last year's profit a "modest rebound." "And I think we need a story to tell in terms of the future -- where the business is trending."

In his 10 months as chief executive officer, Mr. McLaughlin has moved quickly to restructure Sweetheart.

He has divided the company into six "strategic business units," geared to meet the needs of key customer groups. He has cut 10 percent of the company's 1,500 salaried worers and has set the stage for reducing the company's overall head count from 8,500 to about 7,000 during the next two years.

He also is considering moving the company's headquarters from Chicago back to Owings Mills, Maryland Cup's home until 1983, and expects to decide sometime this spring. Such a move would add a few hundred jobs to the site of the company's largest plant, with 2,300 workers.

With several operations, such as research and development and manufacturing, already in Owings Mills, there are sound reasons to move the headquarters here, Mr. McLaughlin said.

"A lot of the attributes of a corporate headquarters location, we find here in Owings Mills. There's no question about that," he said.

Perhaps an even surer sign is that Mr. McLaughlin already lives in Reisterstown and is building a house in Cockeysville, although he emphasized that a decision will be based on the best interests of the company, not his personal preference.

Mr. McLaughlin, a former Nestle's food service executive, was hired last May by AIP. The investment group bought Sweetheart in August 1993 in a complex $445.6 million transaction that dramatically reduced the company's crushing debt, pushing its balance sheet into the black and restoring profitability.

AIP's plans for Sweetheart reflect the backgrounds of its six partners, who include former CEOs of such manufacturers as Goodyear Tire & Rubber Co., Armco Inc. and Mead Corp. It prefers to beef up balance sheets rather than load them with debt, with the aim of bringing a rebuilt company to market.

"None of us in AIP had any desire to be in an operation where you go in and leverage the hell out of it, make a few bucks and get the hell out," said Burnell R. Roberts, one of AIP's partners and chairman of Sweetheart. "That is not what our lives have been about," he said.

In Sweetheart, AIP has taken on a company whose products are as ubiquitous as any in American life.

From its 14 factories in the United States and Canada, including its sprawling 1.1 million-square-foot Owings Mills plant, Sweetheart makes paper and plastic cups, plates spoons, forks and other disposable food service products. Buy a drink at McDonald's, Taco Bell or Wendy's and it will be in a Sweetheart cup. Buy an ice cream cone and chances are it will be served up in a Eat-It-All cone -- the biggest brand of cones in the country.

Sweetheart also supplies containers for ice cream, frozen novelty products and cottage cheese.

Plummeting despite stature

But despite its huge market, Sweetheart was hemorrhaging.

With the sale of the publicly traded Maryland Cup to Fort Howard Co. in 1983, the company began a traumatic period that included the firing of much of its management, the closing of about half its plants, and the alienation of many customers put off by Fort Howard's adversarial approach.

While customer relations improved following its sale in a leveraged buyout six years later, its finances continued to deteriorate under Morgan Stanley & Co., the Wall Street investment banking company that then controlled it.

By the time AIP took over 10 years later, it had a negative net worth of $121.9 million and millions in annual losses.

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