LoJack's Stronger Signal

How the maker of theft-recovery systems for autos is jump-starting its sales

William R. Reagan was never a cop, but as town selectman in Medfield, Mass., in the late 1970s, he carried a badge and held the title of police commissioner. One night in 1977 he pulled someone over who turned out to be a paroled convict. A thought nagged at Reagan: "He could have had a pistol on his lap and blown me away." That episode, Reagan says, spurred him to develop a radio tracking device designed to help police recover stolen cars and reduce the number of dangerous stops. He called his invention LoJack -- "it's the antithesis of 'hijack."'

Almost 30 years later, LoJack Corp. (LOJN ) has become an unlikely growth story. Under new management (Reagan cashed out by the late 1980s), the Westwood (Mass.) company has spent the past three years fine-tuning its sales approach. Over that period, LoJack's profits have soared an average 68% a year on sales that have grown 19% annually -- good enough to be No. 42 on BusinessWeek's Hot Growth ranking of small companies. Reagan and a handful of investors took LoJack public two decades ago, but lately investors have taken notice: Its share price has risen from $4 in 2002 to around $23 in 2005.

A 2001 strategy makeover jump-started sales and profit growth. Until then, LoJack mostly sent its own folks out to install its tracking devices, which are about the size of a deck of cards and are hidden in various spots in the car. Former Chief Executive Ronald J. Rossi, an ex-Gillette (PG ) executive, shifted much of the installation work to auto dealers, who have long sold the lion's share of LoJack systems. "They like the profit opportunity on installations," says current CEO Joseph F. Abely. He figures that dealers, who buy the units wholesale from LoJack, can clear up to $400 per unit sold. That incentive has driven LoJack's market penetration from 4% of all cars sold in the U.S. in 2001 to more than 6% in 2005, according to David Gold, an analyst for New York investment firm Sidoti & Co.

With dealerships taking on more of the installation burden, LoJack's expenses have grown more slowly than sales, benefitting the bottom line. Andrew Spinola, an analyst at investment bank Needham & Co., expects the company's operating margin to hit 16.2% in 2006, up from 9.8% in 2003. Sales are growing at a healthy clip, and an expansion into Italy this year should help. Spinola projects sales of $209 million in 2006, up 11%, and net income of $21.8 million, up 26%.


Rivals are racing to catch LoJack's lead. Ituran Location & Control Ltd. (ITRN ), an Israeli company with a similar tracking technology, made its debut on the New York Stock Exchange this fall. For now, it doesn't plan a big presence in the U.S. market, but it's a player in South Korea and China -- important potential markets for LoJack. And auto companies continue to offer enhanced global positioning systems (GPS), such as General Motors Corp.'s (GM ) Onstar. Analysts say it would be easy for a carmaker to tack a theft-recovery system right onto a GPS tracker, effectively beating LoJack to the punch. But Abely says that GPS trackers are prominently displayed on the car's console and use antennas. That makes GPS easy for a thief to defeat.

To stay ahead of the pack, LoJack has started to deploy some of its $16 million in cash. In late 2004 it acquired Cana-dian company Boomerang Tracking Inc., which offers a LoJack-type service in Quebec. That gets LoJack into a new market and also brings in a second key technology. Boomerang works off of cellular signals, which are much more prevalent than the radio waves LoJack uses to track stolen wheels. Pending Federal Communications Commission approval, LoJack could develop products with a cellular backbone, which would allow it to target the cargo and hazardous materials tracking business.

That would mark quite a jump for LoJack, which first bubbled into the American consciousness with a radio campaign featuring real stolen car stories. "You bought a minute [on Howard Stern], but he'd give you two, three, or four," says Abely. As for inventor Reagan, now 70, he has no financial stake in LoJack's future, but he's still tinkering with tracking devices. His new project: a gadget for backpacks to help locate kidnapped children. Says Reagan of the technology he dreamt up long ago: "It's practically limitless."

By Brian Hindo

Before it's here, it's on the Bloomberg Terminal.