Fuqua Runs Into A Patch Of Tall WeedsWalecia Konrad
If only selling lawn mowers were as easy as giving them away. During Fuqua Industries Inc.'s annual meeting in June, Chief Executive Officer Charles R. "Red" Scott wanted to soothe stockholders, who had watched their shares slip from 32 to 12 over the past three years. So, Scott held a raffle: One lucky soul walked off with a 21-inch Snapper mower.
He may have been the only happy shareholder that day. Battered by recession, high costs, and fierce competition, Fuqua's Snapper unit is in a slump. Its other main business, Qualex Inc. photo finishing, is also under fire from rivals. Fuqua owns several sporting-goods businesses, too, but its two core units account for 88% of revenues. In short, Fuqua is ailing. This year, it posted a $15 million loss on $211 million in sales during its first quarter. And it's expected to lose about $17 million by yearend on $890 million in revenues, reckons Shearson Lehman Brothers Inc.
FRESHLY SEEDED. Although he has been CEO at the company for just six months, Scott is no stranger to Fuqua's woes. He served as chairman of Intermark Inc., a holding company in La Jolla, Calif. Back in 1983, Intermark acquired Fuqua's controlling interest in Pier 1 Imports Inc., the home-furnishings retailer it has since sold.
In 1989, founder J. B. Fuqua sold his 6.6% stake in Fuqua to Intermark for $38 a share--a $6 premium at the time but below Fuqua's $45-a-share breakup value. That, added to earlier buys, left Intermark, which also owns the Western SizzliN Inc. restaurant chain and several real estate companies, with a 27% holding. But Fuqua's profits fell (chart)--scuttling Intermark's plans to amass 51% and beating down its stock 90% since January, 1990.
With his investment in distress, Scott persuaded Fuqua's board of directors in February to let him take over as CEO, replacing Lawrence P. Klamon, who left in June. Says Scott: "I finally realized it was time to take drastic action." Decisiveness may be in Scott's blood: He's the grandnephew of General George S. Patton. Already, Scott has cut the corporate staff from 41 to 18 people and brought in new top management at Qualex.
His biggest challenge: refashioning Snapper, the nation's No. 2 lawn-mower manufacturer behind Toro Co. Its riding and walk-behind mowers, sold only by authorized dealers, are first-rate--and priced that way. They start at $189 and run up to $6,000. But rivals have flooded Wal-Mart Stores Inc. and other discounters with private-label brands that cost as little as $89.
These competitive pressures are creaming Snapper, which lost $300,000 last year on $238 million in revenues. And Snapper lawn mowers have been piling up in storage, sending inventory costs soaring. Snapper's main assembly plant is currently running at only 20% of capacity. Dry weather and the housing downturn have clipped everyone. But "Snapper was much slower to react to backed-up inventory," says Dennis P. Himan, treasurer at Toro.
To lower Snapper's pricing, Scott is slashing costs. Snapper's plants will soon be cut from three to one, while product redesigns will reduce parts, manufacturing costs, and suppliers. On the marketing front, there's a new national ad campaign starring the jaunty psychiatrist character from the TV show Cheers. Snapper may roll out cheaper mowers under a new name.
Meantime, Scott wants to improve the fuzzy picture at Fuqua's 51%-owned photo-finishing business. Qualex offers overnight developing service for film dropped off at retail outlets and boasts a leading 20% market share. But demand is being pinched by the downturn in travel and the popularity of camcorders.
The company tried to maintain profitability by hiking prices last year, but regional competitors undercut it, and Qualex retreated. One-hour "minilabs" are also battering Qualex. That's why sales dipped about 1%, to $624 million, in 1990, while eperating income was flat at $44 million.
Qualex's new automated photo-finishing "microlabs" may help when they're rolled out at a few stores later this year. Customers insert their film into these machines and return in 30 minutes to pick up the developed snapshots. Though speedy, the service will be expensive--about three times the $7-a-roll for overnight service.
Scott promises "to make this company work for the shareholder again." He'd better: Raffles will keep investors amused for only so long.