It took Thomas Sullivan just eight years to drive the company he took over from his father from $11 million to $100 million in revenue. That was 20 years ago.
Today, Republic Powdered Metals’ revenue stands at $1.95 billion and its success comes from aggressive acquisition and mandatory innovation, says Sullivan, the company’s chairman and CEO.
The company’s acquisition approach is so novel that it led industry analyst Timothy Gerdeman of Lehman Brothers to offer this observation: “You (Sullivan) and (Vice Chairman and CFO) Jim (Karman) were essentially the Lewis and Clark of the chemical industry and doing a lot of great acquisitions over the past couple of decades.”
Sullivan’s acquisition strategy is simple: “We buy businesses that don’t need fixing and we let them do their thing,” he told SBN last year.
Stimulating innovation is not as easily explained, though it is a mandatory part of business for the world leader in specialty chemical coatings.
“At the operational level, we live by new products,” he says. “It’s through new products and new marketing that is generally the only way we can keep our margins where they should be.”
Sullivan says the company’s goal is that in any given year, 25 percent of its volume should come from new products developed over the previous three years.
“It’s important to maintaining stable margins in a business of disinflation, which is what we’ve been through in the past several years,” he says.
Sullivan adds that innovative thinking is not necessarily a process that can be taught; and it’s an inherent trait he looks for in his employees.
“The most creative people that I can think of need little motivation because they do it on their own,” he says. “They love what they’re doing.”
Within the company’s operations (as opposed to at its Medina headquarters), employees are encouraged to think out of the box and “not discouraged from coming up with wild, wacky ideas every now and then,” he says.
RPM’s first acquisition was in 1966, when the company bought St. Louis-based Reardon Co. (maker of Bondex products). Since then, it has overseen 81 purchases and 20 divestitures, all part of the industrial products industry, which includes roofing systems, sealants, corrosion control coatings, floor coatings and specialty chemicals. RPM’s products include the well-known name brands Day-Glo, Rust-Oleum and DAP.
The company began a restructuring plan this year that includes cutting 23 facilities. The plan was developed to help cut operational costs and streamline operations, but so far, it has resulted in an earnings drop. RPM’s fiscal year 2000 earnings ended a 52-year growth streak for the company.
Sullivan attributes the 17 percent decline in earnings from 1999 to 2000 to operating disruptions caused by implementation of the restructuring plan, along with large profit shortfalls at some of the company’s operating units.
While sales for the 2000 fiscal year totaled $1.95 billion, a 14 percent increase over the prior year’s record sales of $1.71 billion, net income was $78.6 million, compared to $94.5 million in fiscal year 1999.
Sullivan said in a public statement released in July that operating profits of the StonCor Group fell significantly below the company’s plan because the group encountered difficulties in assimilating the Carboline unit into StonCor, particularly in its foreign markets.
He added that the Testor and Bondo operations also performed below expectations and RPM is addressing issues affecting the underperforming business units. In addition, a $52 million restructuring and asset impairment charge, along with restructuring-related expenses of $8 million — primarily discontinued inventories and plant closing transitional expenses –were charged to earnings during the year.
There were other reasons for the disappointing results that Sullivan addressed during the fiscal 2000, year-end conference call.
“What I would like to do is talk about the what and the how, and most importantly, what we’re doing to correct this past year and how we missed the mark so badly,” he says. “In addition to growing RPM by a billion dollars in the last five years and absorbing our largest acquisition in DAP, last August we announced two major programs — a restructuring program and a reorganization program.
“This caused the lack of focus by our operating people, and in part, probably by some of our corporate people, on what’s so important to us in past years, namely, planning and growth. And obviously, it also cost us our 53rd year of consecutive record earnings.
“Why? We did too much, too soon when you put the restructuring and the reorganization together. In restructuring, we failed to understand the pitfalls that most programs of this nature have,” he says.
Sullivan does not expect remaining costs associated with the restructuring program to affect future earnings.
“The positive earnings impact of this program will begin to be seen in the 2001 fiscal year,” he says. “Earnings growth in 2001 will get back to our more traditional levels, upwards of 10 percent or more.”
Sullivan recognizes that even an innovative operation occasionally faces some growing pains.
“Although this past year has been very painful, in the long run, I am confident that the restructuring and the reorganization programs will serve RPM well.”
The Medina-based company has 96,000 shareholders, 6,800 employees and hundreds of sales and technical representatives. Its products are sold in more than 110 countries and manufactured at 72 plant locations in 14 countries.
RPM common shares are traded on The New York Stock Exchange under the symbol RPM. Of its total 1999 sales of $1.7 billion, approximately 60 percent was generated by industrial products sold worldwide and the remainder by branded consumer goods sold primarily in North America. How to reach: RPM Inc., (330) 225-3192 or www.rpminc.com
Connie Swenson ([email protected]) is editor of SBN Akron/Stark.
RPM’s industrial maintenance products
Tremco waterproofing
Alumanation roofing coatings
Paraseal membranes and Vulkem, Dymeric and Monile sealants
Carboline, Plasite, Mathys, Alox, Westfield and TCI corrosion protection
Dryvit exterior insulation finishing systems
Stonhard and Duracon industrial and commercial floor coatings
Day-Glo fluorescent colorants and pigments
Wolman industrial lumber treatments
Fibergrate and Chemgrate fiberglass reinforced plastic grating
American Emulsions textile additives
Euco concrete admixtures sold by Euclid Chemical Co.
RPMs consumer products
Rust-Oleum and Stops-Rust rust-preventative coatings
Painter’s Touch, American Accents decorative
Zinsser primers and sealants
Bondex and Plastic Wood patch and repair products
Wolman deck coatings, sealants and brighteners
Thibaut wallcoverings
Bondo and Marson auto repair compounds
Mar-Hyde auto body paints
Varathane, Watco, Mohawk and Chemical Coatings woodworking and wood finishing products
Testors and Floquil model kits, coatings and accessories for the hobbyist market
Pettit, Woolsey and Z-Spar marine coatings
DAP caulks and sealants
