By Roger Choudhury
We parsed through the industrial sector to find the best management teams in the business.
Unlike Avon Products (AVP) (which we believe has a horrible management team), these stewards are shareholder-friendly, return capital to shareholders through dividends or buybacks, and don’t dilute shareholders with offerings and generous options grants to management. Management also retains at least a reasonably sized stake in each company, which aligns management with shareholders.
These are the 5 companies we found, plus some commentary on each:
Actuant (ATU) is a global manufacturer of a broad range of industrial products and systems with operations in more than 30 countries. In FY 2010, ending on August 31, the Company made net sales of $1.16 billion with a 10% increase in profits. Bob Arzbaecher is the Chairman, President and CEO. He held various financial positions with Grabill Aerospace, Farley Industries, and Grant Thornton.
Bill Axline is the Executive VP of the Electrical segment, which accounted for $55 million in sales in Q1 2011. He was the former CEO of Distribution America. Bill Blackmore is the Executive VP of Engineered Solutions, which made $104.8 million in sales in Q1 2011. He spent over 17 years with Rexnord, a division of Invensys Plc. Brian Kobylinski is the Executive VP of the Industrial and Energy segments, which produced in $158 million of sales in Q1 2011. He held a number of management roles with Gardner Bender and Del City.
The Board of Directors includes Gurminder S. Bedi, who is the Managing Partner of Compass Acquisitions (a private equity partnership) and retired VP of the Ford Motor Company (F); William K. Hall Chairman, Procyon Technologies, which is a holding company focused on the acquisition and growth of suppliers to the global aerospace and defense industry; R. Alan Hunter Jr., who was the former President and Chief Operating Officer of the Stanley Works, a multi-national manufacturer and marketer of tools, hardware and specialty hardware products; Robert A. Peterson, who is the President and Chief Executive Officer of Norcross Safety Products, which is a manufacturer and marketer of personal safety equipment; Holly A. Van Deursen, the former executive of BP including Group VP Petrochemicals and Group VP Strategy; Dennis K. Williams, a former President, Chief Executive Officer and Chairman of IDEX Corporation, which is a manufacturer of engineered industrial products.
Return on equity is 3.3% at the end of Q1 2011, or the three months ending November 30, 2010. It was 3.23% at the end of FY 2010, and 1.99% at the end of FY 2009.
Cameco (CCJ) is one of the world’s largest uranium producers, accounting for about 16% of world production from its mines in Canada, the US and Kazakhstan. Its leading position is backed by almost 480 million pounds of proven and probable reserves and extensive resources. Cameco is also a leading provider of processing services required to produce fuel for nuclear power plants, and generates 1,000 MW of clean electricity through a partnership in North America’s largest nuclear generating station located in Ontario, Canada.
Gerald Grandey has been CEO since 2003. Prior appointments include vice-chair and chief executive officer of the Concord Mining Business Unit and president of Energy Fuels, an American coal and uranium mining company. Tim Gitzel serves as President. Prior to joining Cameco, he was executive vice-president, mining business unit for AREVA based in Paris, France with responsibility for global uranium, gold, exploration and decommissioning operations in 11 countries around the world. Grant Isaac is the Senior VP of Corporate Services, and former Dean of the Edwards School of Business, University of Saskatchewan from 2006 to 2009.
The chair of the Governance committee is Nancy Hopkins, who is a partner with the law firm of McDougall Gauley, LLP in Saskatoon, where she concentrates her practice on corporate and commercial law and taxation. Other members include James K. Gowan, the COO and CTO of DeBeers SA and President and CEO of DeBeers Canada Inc., a diamond exploration and mining company; Joe F. Colvin, a board director and the vice president/president-elect of the American Nuclear Society; James R. Curtiss, the principal of Curtiss Law since April 2008; and A. Anne McLellan is a former Deputy Prime Minister of Canada, and has held several senior cabinet positions, including federal Minister of Natural Resources, Minister of Health, Minister of Justice and Attorney General of Canada, and federal interlocutor of Métis and non-status Indians.
In FY 2010, net earnings were $514.7 million CDN ($519.7 million) with a return on equity of 9.86%. In 2009, ROE was 9.66%
Crane (CR) is a diversified manufacturer of highly engineered industrial products. Its business consists of 5 segments: Aerospace & Electronics ($416.1 million in sales in the first 9 months of 2010 [+4.5%, compared to the same period in 2009]), Engineered Materials ($167.3 million [+30.7%]), Merchandising Systems ($221.9 million [+0.4%]), Fluid Handling ($758.2 million [+4.8%]), and Controls ($80.3 million [+14.3%]).
Its primary markets are aerospace, defense electronics, recreational vehicle, transportation, automated merchandising, chemical, pharmaceutical, oil, gas, power, nuclear, building services and utilities. Eric Fast has been the CEO since 2001. David Bender is the Group President of Electronics. He was VP of Operations for Aerojet General Corporation, a division of GenCorp, from 2004 to 2005, and Executive VP of GDX Automotive, a division of GenCorp, from 2003 to 2004.Thomas Craney is the Group President of Engineered Materials.
From 1979 to 2007, he was with Owens Corning, and was most recently VP of Sales of the North American Building Materials from 2005 to 2007, VP and General Manager of the Commercial and Industrial Insulation business from 2000 to 2005. Bradley Ellis is the Group President of Merchandising Systems and VP of Crane Business Systems. Max Mitchell is the Group President of Fluid Handling. He was the VP of Operational Excellence of the Company from March 2004 to April 2005. From 2001 to 2004, he served as the Senior VP of Global Operations for the Pentair Tool Group. Thomas Perlitz is the VP of Corporate Strategy and Group President of Controls. From 2005 to 2009, he was VP of Operational Excellence.
The Chairman of the Board of the Company is Robert S. Evans. He has been a Director of Crane Company since 1979 and Chairman of the Board of Crane Company since April 2001. He was Chairman and Chief Executive Officer of Crane Co. from 1984 to 2001. Other directorships: HBD Industries since 2005; Huttig Building Products since 1972. Other directors include E.Thayer Bigelow, Managing Director of Bigelow Media, which invests in media and entertainment companies; Karen Dykstra, who is a Partner at Plainfield Asset Management; Richard S. Forte is retired chairman of the Forte Cashmere Company, which is an importer and manufacturer; Dorsey R. Gardner is President of the Kelso Management Company, which specializes in investment management; Phillip R. Lochner is Director of Public Companies and former SEC Commissioner; Ronald F. McKenna is the retired President and CEO of Hamilton Sundstrand, a division of United Technologies; Charles Queenan, Jr., is Senior Counsel at K&L Gates, Attorneys at Law; and James L. L. Tullis is CEO of Tullis-Dickerson & Company, a Venture Capital to Health Care industry.
For the first 9 months of 2010, the ROE was 12%. It was 9.7% for the same period in 2009.
United Technologies (UTX) provides high technology products and services to the building systems and aerospace industries worldwide. It conducts business through 6 principal segments: Otis, Carrier, UTC Fire & Security, Pratt & Whitney, Hamilton Sundstrand and Sikorsky. Sales generated by Otis’ international operations were 82 percent and 80 percent of total Otis segment sales in 2010 and 2009, respectively.
At December 31, 2010, Otis’ backlog was $13,923 million as compared to $14,550 million at December 31, 2009. Of the total Otis backlog at December 31, 2010, approximately $7,874 million is expected to be realized as sales in 2011. Sales generated by Carrier’s international operations, including U.S. export sales, were 56 percent and 55 percent of total Carrier segment sales in 2010 and 2009, respectively.
At December 31, 2010, Carrier’s backlog was $2,240 million as compared to $2,199 million at December 31, 2009. Substantially all of the backlog at December 31, 2010 is expected to be realized as sales in 2011. Sales generated by UTC Fire & Security’s international operations, including U.S. export sales, were 84 percent and 82 percent of total UTC Fire & Security segment sales in 2010 and 2009, respectively.
At December 31, 2010, UTC Fire & Security’s backlog was $1,106 million as compared to $898 million at December 31, 2009. Most of the backlog at December 31, 2010 is expected to be realized as sales in 2011. Sales generated by Pratt & Whitney’s international operations, including U.S. export sales, were 52 percent of total Pratt & Whitney segment sales in each of 2010 and 2009.
At December 31, 2010, Pratt & Whitney’s backlog was $23,533 million, including $5,059 million of U.S. government-funded contracts and subcontracts. Of the total Pratt & Whitney backlog at December 31, 2010, approximately $7,065 million is expected to be realized as sales in 2011. Sales generated by Hamilton Sundstrand’s international operations, including U.S. export sales, were 49 percent and 50 percent of total Hamilton Sundstrand segment sales in 2010 and 2009, respectively.
At December 31, 2010, Hamilton Sundstrand’s backlog was $5,119 million, including $719 million of U.S. government-funded contracts and subcontracts. Of the total Hamilton Sundstrand backlog at December 31, 2010, approximately $2,496 million is expected to be realized as sales in 2011. Sales to the U.S. government were 68 percent and 63 percent of total Sikorsky segment sales in 2010 and 2009, respectively. Sales generated by Sikorsky’s international operations, including U.S. export sales, were 33 percent and 32 percent of total Sikorsky segment sales in 2010 and 2009, respectively. At December 31, 2010, Sikorsky’s backlog was $9,287 million, including $4,234 million of U.S. government-funded contracts and subcontracts. Of the total Sikorsky backlog at December 31, 2010, approximately $5,421 million is expected to be realized as sales in 2011.
Louis R. Chênevert is Chairman, President, and CEO of the Company. He is a former President of Pratt & Whitney. Chênevert spent 14 years at General Motors. He served as production general manager of General Motors’ St. Therese operation in Canada. Didier Michaud-Daniel is the President of Otis Elevator. His career at Otis began in 1981 in service sales, progressing into sales, branch and field support management. In 1991, he was appointed field operations director for Otis France and, in 1992, was promoted to the position of Paris field and sales operations director. He was named deputy general manager, operations in January 1998. William Brown was appointed President of UTC Fire & Security in January 2006. He previously led Carrier's Asia Pacific Operations since January 2004 and also has served as President of Carrier Transicold and General Manager of the Replacement Components Division. He joined UTC in 1997 as Director, Strategic Planning. David P. Hess is the President of Pratt & Whitney. He joined this division after 4 years as president of Hamilton Sundstrand, the United Technologies division, where he began his professional career in 1979. Alain M. Bellemare is the President of Hamilton Sundstrand. Since 2002, Bellemare served as president of Pratt & Whitney Canada. Bellemare spent more than 12 years in a variety of engineering and manufacturing positions with Kraft Canada and Crown Cork & Seal Canada. Jeff Pino is the President of Sikorsky Aircraft. Previously, Mr. Pino spent 17 years with Bell Helicopter Textron where he last served as senior vice president. Pino is a retired master Army aviator and served in U.S. Army active, Reserve, and National Guard assignments for 26 years.
The Board of Directors is composed of several distinguished individuals: John V. Faraci is the Chairman and CEO of International Paper; Jean-Pierre Garnier is the retired CEO of GlaxoSmithKline; Jamie S. Gorelick is a Partner at WilmerHale, which is an international law firm; Edward A. Kangas is former Chairman and CEO of Deloitte Touche Tohmatsu, an audit and tax services firm; Ellen J. Kullman is Chair of the Board and CEO of DuPont; Charles R. Lee is retired Chairman and Co-CEO of Verizon Communications; Richard D. McCormick is retired Chairman, President & CEO of US West, a telecommunications company; Harold McGraw III is Chairman, President, and CEO of the McGraw-Hill Companies; Richard B. Myers is a retired General in the US Air Force and former Chairman of the Joint Chiefs of Staff; H. Patrick Stewart is President Emeritus at Howard University in DC; André Villneuve is Chairman of the International Regulatory Strategy Group for the City of London; and Christine Todd Whitman is the former Governor of New Jersey and former Administrator of the EPA.
With this all-star cast, ROE was 21.1% in 2010, and was 21.28% in 2009.
Nucor (NUE) is a manufacturer of steel and steel products, with operating facilities and customers primarily located in North America. Additionally, Nucor is a scrap processor and broker and is North America’s largest recycler. Nucor reports its results in three segments: steel mills, steel products and raw materials. In the first 9 months of 2010, (net sales) [compared to the same period in 2009] are: steel mills ($8.28 billion [+61%]), steel products ($2.09 billion [+0.18%]), and raw materials ($1.36 billion [+70%]).
Daniel R. DiMicco is the Chairman and CEO. He has been in management since 1992. Keith B. Grass has been the President and CEO of the David J. Joseph Company since 2000. He started with the Company in 1978. James Darsey is an Executive VP, and spent 20 years at Vulcraft. John J. Ferriola is the President and COO. Ladd R. Hall is the Executive VP. He spent 10 years at Vulcraft. Hamilton Lott, Jr. has been an Executive VP since 1999, and began his career as a design engineer at Vulcraft in 1975. R. Joseph Stratman is an Executive VP, and was VP and General Manager of Nucor Yamato Steel from 1999 to 2007.
Directors include: Peter C. Browning is a Lead Director, and a former Dean of McColl Graduate School of Business at Queens University (March 2002 to May 2005); Clayton C. Daley, who is the Vice-Chairman at the Proctor & Gamble Company; Harvey B. Gantt, the Principal Partner at Gantt Huberman Architects; Victoria F. Gaynes, Ph.D., the President and CEO of RTI International; James D. Hlavacek, Chairman and CEO of the Corporate Development Institute and Managing Director of Market Driven Management; Bernard L. Kasriel is the Partner at LBO France; Christopher J. Kearney is the Chairman, President and CEO of SPX; and John H. Walker is the CEO of Global Brass and Copper.
In the first 9 months of 2010, the ROE was 2%. Net sales were also up 45%, when compared to the first 9 months of 2009.
Disclosure: I am long ATU.