Richard Anderson stepped into the chief executive officer role at Delta Air Lines in September 2007, a mere four months after the Atlanta-based carrier had emerged from Chapter 11 bankruptcy protection into a very challenging time for the industry. Fuel prices were up 5 percent that year on top of a 15 percent jump in 2006 but passing along price increases to customers was proving impossible. In addition, Delta was still burdened with more than $7.5 billion in debt (down from nearly $17 billion in mid-2005) and faced the constant threat of labor strikes.
Anderson decided that the strategies long relied upon by his company indeed, by the entire industry were in need of an overhaul. He determined that Delta would chart a different course, one that would allow it not only to break away from its competitors but to dominate the sector.
If you take the same old conventional approach to the airline business piling on a lot of debt, arguing with your employees, treating your business as a commodity youre going to get the same outcome, the 59-year-old says.
Over the past five years, Anderson has poured roughly $3 billion into upgrading the companys facilities and fleet, revamping its onboard products (beverages, food, entertainment) and updating its online presence. Delta opened international terminals in Atlanta and New York and remodeled its arrival facility in Minneapolis. To tackle the problem of volatile fuel costs, the carriers biggest expense, Delta bought a Phillips 66 refinery in Trainer, Pennsylvania, in 2012.
Anderson says the most important step hes taken may be the expansion of Deltas global network. In June the company completed its $360 million purchase of a 49 percent stake in U.K.-based competitor Virgin Atlantic Airways. The partnership enjoys roughly one third of the flight business between New York and Londons Heathrow Airport; previously, Delta held a 9 percent market share of that route. A joint venture with Société Air France and the Netherlands KLM Royal Dutch Airlines has given Delta hubs in Paris and Amsterdam and become the model upon which the U.S. company is developing relationships with Brazils Gol Linhas Aéreas Inteligentes, Mexicos Aerovías de México and several carriers in Asia, including China Eastern Airlines Corp. and Korean Air Lines Co.
Thats a much broader reach than Delta enjoyed in 2007, when its hubs were limited to Atlanta, Cincinnati and Salt Lake City.
Other carriers are still very tribal about these things. We arent, Anderson declares. Since this is a business of scope and scale, we had to build the network and assets to have the global reach.
The strategy has proved remarkably successful. The end of 2013 marked four straight years of sustained profitability and free cash flow for Delta. Last year the company reported that operating cash had reached $4.5 billion, a significant improvement over its average of $2.5 billion from 2009 through 2012. It expects to reach $5.8 billion this year. Deltas stock gained 46.1 percent in the first ten months of 2014; during the same period the S&P 500 advanced 11 percent.
Portfolio managers and sell-side analysts who participate in the All-America Executive Team, Institutional Investors annual ranking of the best corporate leaders, agree that Delta has managed a miraculous takeoff since emerging from bankruptcy. They deem Anderson the sectors best CEO and also award high marks to the airlines chief financial officer, Paul Jacobson, and director of investor relations, Jill Greer. Survey results reflect the opinions of more than 1,250 buy-siders at some 660 firms that collectively manage an estimated $7.8 trillion in U.S. equities and from roughly 1,000 analysts at more than 150 brokerages and independent investment firms.
The Honored Companies table in the navigation bar at right lists the U.S. businesses that received the highest scores, regardless of sector (Delta lands in 12th place overall). The Best CEOs, Best CFOs, and Best IR Professionals tables list the top-ranked leaders in each sector. Best IR Companies shows which entities come out on top when responses to IR attribute questions are aggregated.
Winners will be honored at a dinner and ceremony on March 5 at the Mandarin Oriental in New York.America's Most Honored Companies: The Top 10Listed below by weighted score are the 10 companies that rank highest in this year's All-America Executive Team survey. In case of a tie in the weighted score, the rank is determined by companies' relative performance within their sectors.
|CEO Rank||CFO Rank||IR Pro Rank||IR Co Rank|
|1||CVS Health Corp.||24||1||1||1||1||1||1||1||1|
|4||Enterprise Products Partners||24||1||1||1||1||1||1||1||1|
|5||Discover Financial Services||23||1||2||1||1||1||1||1||1|
|7||Avis Budget Group||23||1||1||1||1||2||1||1||1|
Many of the companies that fare especially well this year, like Delta, have been transforming their businesses and often their industries as they rethink their roles amid fast-shifting economic, geopolitical and technological landscapes.
Take this years No. 7 company, Avis Budget Group. Six years ago the Parsippany, New Jerseybased vehicle rental outfit found itself in the midst of a near-death experience, as CEO Ronald Nelson remembers it, after the financial crisis froze credit markets and caused precipitous declines in travel spending. By March 2009 the companys share price had plummeted to 36 cents down more than 96 percent from one year earlier but last week those same shares were trading hands at $55.75 apiece.
The transformation came about after Avis Budgets executive team reconsidered its assumptions about how a car rental agency should be managed, recalls Nelson, 61. The senior leadership got together and we said, Lets figure out where this business is going and what we can do to survive and prosper in it, he says.
They reviewed the areas in which Avis Budget was making the most money and considered ways to maximize those profits. One area that stood out during this deep dive was the companys fleet of luxury vehicles. The received wisdom of the car rental business was that it should prize utilization rates (the amount of time that vehicles are making money, compared with the time they sit waiting to be rented); those not utilized between 70 and 80 percent of the time werent worth owning. Because the utilization rate of premiums is closer to 50 or 60 percent, they made up only about 6 percent of the Avis Budget fleet in 2010. However, once the company determined that, despite the lower utilization rates, luxury cars generated 60 to 80 percent more revenue per unit than other vehicles, it opted to expand that portion of the fleet to 25 percent.
Nelson, the best CEO in the Leisure sector, according to investment professionals on both the buy and sell sides, says the executive team also realized it could spur margin expansion by encouraging more cross-border traffic, because renters incur a surcharge when they drive from one country to another. To realize this goal, however, Avis Budget would have to establish a presence in more countries. In 2011 it spent $1 billion to buy Avis Europe, which operates not only in Europe but also Asia, Africa and the Middle East. This acquisition established Avis Budget as the rental agency with the largest global footprint, maintaining a presence in 175 countries.
The companys sights remain set on Europe thanks to the wealth of consolidation opportunities Nelson and his team see there. Unlike in the U.S., where three major players (Avis Budget; Enterprise Rent-A-Car of St. Louis; and Naples, Floridabased Hertz Corp.) control roughly 97 percent of the market, about 35 percent of Europes car rental business is in the hands of independents. Nelson expects his company to be a major driver of future consolidation.
You look at the European economy and you say, Shouldnt you guys hold back a little bit? Nelson says. Our view is no. This is the time when you invest and build your business, and when it does turn, youre a lot more profitable and youre not playing catch-up.
The CEO has come to embrace the concept of car sharing, which he once rejected. In March 2013, Avis Budget paid about $500 million for Zipcar, a Cambridge, Massachusettsbased sharing services provider with more than 800,000 members and 10,000 vehicles worldwide. After the acquisition Avis Budget controls 70 percent of the car-sharing market in North America, with plans to expand globally over the next five to six years.
In late October, Avis Budget reported that revenue jumped 6 percent year-over-year in the third quarter, to a record $2.5 billion, while net income soared 29 percent, to $209 million. Nelson believes this year will be the most profitable in the companys history. The stock gained 37.8 percent year to date through October.
Freeport-McMoRan, which captures second place on the 2015 All-America Executive Team, is also moving into a period of expansion and introducing new business lines as opportunities present themselves and the economic landscape evolves. The Phoenix-based producer of copper, gold and other precious metals plans to increase capital expenditures by 34 percent this year, to $7.1 billion, and spend even more in 2015, $7.3 billion, as it identifies the next round of mining projects. One major recipient of the stepped-up investment will be Indonesias Grasberg Mine, the largest gold and third-largest copper mine in the world.
Recently, theres a problem of near-term uncertainties geopolitical, but also economic, says Richard Adkerson, the best CEO in the Metals & Mining sector, according to both money managers and sell-side analysts. But in a business like ours, to be successful we must take a longer-term view than that or we wont take advantage of the opportunities that, if were right in our strategic assessment, are available to us.
One such opportunity that suggested itself last year was expansion into oil and gas exploration and production. Freeport-McMoRan spent some $20 billion to acquire two such companies: sister entity McMoRan Exploration Co. of New Orleans and Houston-based Plains Exploration & Production Co.
However, Adkerson insists the purchase doesnt represent dampened optimism for the companys core copper mining business. Rather, establishing a presence in the oil and gas space offers an incremental opportunity to add growth in the long waiting periods during which mineral reserves are converted into cash-producing assets, the 67-year-old CEO explains.
Its complementary to the mining business, as opposed to representing any sort of change of emphasis, he says.
Late last month Freeport-McMoRan reported third-quarter earnings that beat analysts expectations. Net income fell approximately 33 percent, from $821 million to $552 million, compared with the same period one year earlier, while sales slid from $6.2 billion to $5.7 billion. The consensus had forecast quarterly sales of $5.6 billion. The stock tumbled 21.5 percent in the first ten months of the year.
The executive team at this years No. 4 company, Houston-based Enterprise Products Partners, also earns praise for keeping an eye on the long term. Becca Followill, head of research at U.S. Capital Advisors, based in Houston, credits the natural-gas and crude oil pipeline company with being the first to build an ethane line to the Gulf Coast, the first to build a major propane export facility and the first to reverse a crude oil pipeline back to the Gulf to meet changing demands there.
They are first movers, which generally leads to higher returns and a longer-term competitive advantage, Followill explains. They are the largest master limited partnership in the space yet also the most nimble. That is rare.
Michael Creel, CEO of Enterprise Products general partner and the top pick of both buy- and sell-side analysts who cover natural gas and master limited partnerships, acknowledges that an important aspect of navigating business strategy is quickly finding solutions to the shifting supply and demand needs of various oil and gas products. Right now, he says, the U.S. has an oversupply, so Enterprise has grown active on the export side of its business: expanding its liquefied petroleum gas export facility and announcing a new ethane export facility.
Finding solutions to this ever-shifting balance has led the company to repurpose assets when necessary. Enterprise reversed the flow of its 1,200-mile Texas Express Pipeline, which now transports ethane from the Marcellus shale site in Pennsylvania to Mont Belvieu, Texas. Natural-gas liquids like ethane and butane used to run along the line in the opposite direction, but the shale revolution in the Northeast has turned the Gulf region from energy supplier to a major recipient of the gas.
Our focus changes with the market, says Creel, 60. We try not to wait for customers to come to us and tell us what they need. We look at the landscape and try to figure out what they need and present solutions to them.
Late last month the company reported that net income surged nearly 18 percent year-over-year in the third quarter, to $699 million, and adjusted earnings before interest, taxes, depreciation and amortization rose 14.2 percent, to $1.3 billion. The stock skyrocketed more than 135 percent year to date through October.
Houstons Halliburton Co., the oil-field services behemoth that ranks third on this years team, also receives plaudits from investment professionals for quickly reacting to the evolving energy landscape.
The rapid rise in high-intensity well stimulation has dramatically changed the landscape of the unconventional U.S. oil services market, reports William Herbert, Houston-based co-head of securities at Simmons & Co. International. (Unconventional oil refers to petroleum that is produced or extracted via techniques other than traditional methods such as oil wells.) We believe that Halliburton management has been the most proactive and successful in navigating this critical shift and the logistical challenges it has created.
Halliburton CEO David Lesar, 60, says the companys scope proved to be a major boon in spotting the changes coming to so-called unconventional oil.
Were the largest service company in North America, so we have a look inside almost every customer and certainly every reservoir that exists in the U.S., says Lesar, the preferred CEO of both the buy and sell sides in the Oil Services & Equipment sector. We saw the unconventional train coming at us. The first step in taking advantage of that fast-approaching growth required the development of the new technology customers would need to tap unconventional sources, Lesar says. Halliburton increased its research and development spending from $401 million in 2011 to $460 million in 2012 and $588 million last year.
Although business in North America is growing swiftly in fact, it is Halliburtons fastest-growing segment Lesar says its still a no-brainer to continue to expand internationally as a counterbalance to the activity in the U.S. By the third quarter of this year, Halliburton was operating in nearly 100 countries. Lesar, who has worked out of Dubai since 2007, says he plans to devote particular attention to opportunities in Argentina, Australia, Saudi Arabia and West Africa.
In October, Halliburton reported that total revenue jumped 16 percent year-over-year in the third quarter, to a record $8.7 billion, and operating income bolted 45 percent, to $1.6 billion. The companys shares gained 11.1 percent year to date through October.
V.F. Corp. also has ambitious plans for global expansion, according to Eric Wiseman, deemed the best CEO in Apparel, Footwear & Textiles by investment professionals on both sides of the financial aisle.
We think we can grow this big company 8 percent a year organically, says Wiseman, 58. But we cant rely on North America to do that. We have to get good at doing business in other countries and behaving like a global business, versus a U.S. business that exports some products.
The Greensboro, North Carolinabased manufacturer of activewear and accessories whose notable brands include JanSport, Lee, Nautica, North Face, Timberland and Wrangler appears to be well on the way to doing just that. Last month the company, which ranks sixth on the All-America Executive Team, reported that international revenue accounted for 41 percent of total third-quarter sales, up 1 percentage point from the same period one year earlier. Total revenue rose 7 percent, to $3.5 billion, while operating income surged 9 percent, to $633 million. V.F. Corp.s stock climbed 9.9 percent in the first ten months of the year.
The company has opened international design centers and built local teams in hopes that customers in non-U.S. markets see V.F.s brands as their own, not as an American export, Wiseman says. In the third quarter international sales were up 9 percent, climbing 8 percent in Europe, where consumer spending across the board remains stagnant, the CEO points out.
V.F. Corp. also is emphasizing product innovation. In 2010 the company established a fund accessible to any of its business lines that wants to develop new ideas. To date, it has channeled more than $15 million into employees suggestions. One major success: North Faces Thermoball, a coat that uses as its insulation a synthetic material meant to imitate down feathers.
Earlier this year the company opened three global centers where designers, engineers and scientists will work full time on breakthrough ideas in apparel and footwear: the Footwear Innovation Center in Stratham, New Hampshire; the Jeans Innovation Center in Greensboro; and the Technical Apparel Innovation Center in Alameda, California.
We think that V.F.s management team had done an excellent job navigating the continuum between art and science in apparel, applauds Edward Yruma, a consumer and retail analyst at KeyBanc Capital Markets in New York. They have grown brands with authentic voices while leveraging the scale and consumer insight capabilities of the broader organization.
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