MANAGEMENT
Pfaudler Permutit Looks for Broader Markets Acquisitions, new foreign operations, and streamlined management helped Pfaudler boost sales 41% last year President Donald A. Gaudion of Pfaudler Permutit was back in his office last week after a busy April. At the company's annual meeting in Rochester, N.Y., where stockholders approved a 2-for-l stock split, he happily outlined the company's record sales and earnings performance in 1960. He repeated the performance before the Society of Security Analysts in New York. In Philadelphia, he listened to some ambitious plans at a sales meeting of Ionac Chemical Co., a new "profit center" created out of a rejuggled Permutit Division. He ran down to Princeton, N.J., to visit AeroChem Research Laboratories, which Pfaudler Permutit acquired last year. All of this after just returning from Japan and a planning conference with one-third-owned Shinko-Pfaudler Co. This travelogue does not indicate simply that there is a crowded calendar on Mr. Gaudion's desk. It highlights the reasons—streamlined management, strong foreign operations, expansions, and a vigorous research program—why Pfaudler Permutit's sales catapulted 4 1 % in 1960 and its earnings 24 r /r. And for these same reasons, the company projects sales in 1965 at $80 to $85 million, compared with last year's $51.5 million. This past fiscal year, Pfaudler Permutit set all-time records in sales, earnings, orders received, and backlog. Net earnings were $2.0 million or $3.62 per share. This compares with $1.7 million or $3.04 per share in 1959. Foreign earnings, from both consolidated (wholly owned) and partially owned companies, accounted for 80 cents per share of 1960 earnings. Last year's consolidated sales of $51.5 million (compared to $44.7 million in 1959) swell to $62 million if the company's share of partially-owned foreign subsidiaries is included. Incoming orders ($53.7 million) exceeded the previous high, established in 1959, by 20%, and backlog at the end of last year ($19 million) was up 13% from a year ago.
But Pfaudler Permutit's activity in 1960 went beyond setting sales records. In November its stock was listed on the Big Board. In September it acquired AeroChem. It expanded production units in West Germany, Japan, and Rochester, N.Y., planned a major new research laboratory in Rochester, and completed one in Scotland. Besides adding AeroChem as a new operating division, management split the Permutit Division into four "profit centers." These groups, each responsible for its own planning and profits, are the Ionac Chemical, industrial, appliance, and Simplex divisions. How did Pfaudler Permutit emerge from a "maker of glass-lined pots" to a dynamic and diversified corporation?
The answer lies in a program of management housecleaning, expansion with an eye toward increased pershare earnings rather than merely increased sales, and development of new products through research. As recently as the years following World War II, Pfaudler manufactured glass-lined process equipment for the chemical, food and beverage, brewery, and pharmaceutical industries. There were no dramatic sales increases and, as Mr. Gaudion recalls, it was a feastor-famine, cyclical business. Management worried that new technology might make its basic product, the coating of glass on metal, obsolete. It was aware that fast-moving national and international developments would require internal management special-
STAINLESS STEEL. Workmen at Pfaudler's Rochester plant are fabricating dimpledjacketed stainless steel reactors. Equipment fabricated by the plant includes chemical reactors, storage tanks, heat exchangers, process vats, and fermenters MAY
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Pfaudler Permutit Sets Sales, Earnings Record
glot of unrelated businesses," Pfaudler hunted two kinds of game: • Companies that could be fully integrated into its existing organization— "niche filling," Mr. Gaudion terms it. • A major acquisition which would result in a completely new operating division, set up on a semiautonomous basis.
NET SALES Does not include unconsolidated subsidiaries. Millions of Dollars
TOTAL NET SALES OF ALL FOREIGN COMPANIES
1951
1952
1953
1954
1955
ists to cope with the changes. But at a $10 to $12 million sales level, the company could hardly afford specialists. Sixty by Sixty. Pfaudler came to the fork in the road in 1954, found that there were two ways it could go: "Get under an umbrella" by selling out to a large company, or try to get big by itself. The company elected to go it alone and in 1954 set a sales 24
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goal of "sixty by sixty"—$60 million by 1960. It reasoned that, as sales grew, it could develop the necessary internal management, research, marketing, and manufacturing specialization. Guided by a small top management staff, Pfaudler started in earnest an acquisition and merger program. Looking for companies that were closely allied with its own field because it didn't want to build a "poly-
The "niche fillers" range from outright acquisition of some companies to marketing agreements with others. Pfaudler acquired Schock Gusmer and Co. to extend its product line for the brewery industry and Pitmar Corp., which added new liquid-solid separators to its line of process equipment. The company also obtained patent rights to a fast-selling wiped-film evaporator and design and manufacturing rights, with Goulds Pumps, to a pump for corrosive materials. It strengthened its position in the industrial waste treatment field by roping in Bulkley-Dunton Pulp's flotation equipment. And it stretched a hand into South Africa to sign a manufacturing and marketing agreement for the Moore Pretreatcr used in water and waste treatment. The big jump came in 1957, when Pfaudler merged with Permutit Co. to form Pfaudler Permutit. More than extending or complementing existing product lines, the move put the company into a new but allied fieldconditioning water. And it paved the way to new markets (public utilities, municipalities, waste treatment). Permutit's attraction, certainly, lies in its future, not in its past. When it merged with Pfaudler, Permutit was a dormant company in a highly competitive field, says Mr. Gaudion. Sales in 1956, the last year before the merger, were $13.9 million. By 1960 they had inched up, but only to $14.6 million. Rebuilding Permutit. At the time of the merger, Permutit had three major competitors and all of them have since been bought out. Union Tank Car purchased Graver Water Conditioning, Crane Co. took over Cochrane Corp., and Infilco was bought by General American Transportation. This, to Mr. Gaudion, paints a picture of a demoralized industry. But it shows, too, that three major companies besides Pfaudler feel that the basic markets are sound and that building for them will pay off. Believing that water conditioning is a growing field, and that the Permutit name is a key to its rewards, manage-
ment has spent the past three years rebuilding Permutit. And, Mr. Gaudion hastens to point out, it usually takes from five to seven years to heal a sick operation. The big prescription was filled last year, when Permutit was subdivided into the four separate · divisions or "profit centers." Mr. Gaudion tells C&EN that eventually these groups will probably become separate companies and operating divisions of the corporation. Then Permutit will probably disappear as an operating division, although the magic name will doubtless remain in its product line. Oddly enough, Permutit's appliance division, the operation that lends fame to the Permutit name, contributes least (1.7%) to over-all corporate sales. The appliance division, which makes and markets home water softeners and is the only division selling directly to consumers, rang up only $900,000 in sales last year. Sales of competitor Culligan hit about $14 million. Simplex Valve and Meter is another small contributor to corporate coffers, with 1960 sales of $1.4 million or 2.2% of the total. Based in Lancaster, Pa., it designs and sells meters, gages, controllers, and valves for municipal water and sewage systems. Two thirds of Permutit's sales and 16.3% of the world-wide corporate sales dollar ($10.2 million) came from the industrial division, which designs and manufactures water-treating equipment for a myriad of uses, including purifying, softening, demineralizing, and removing taste and odors. Chemicals Move Up. Permutit's chemical division, which recently underwent a name-changing to Ionac Chemical Co., is another small entity, but with ambitious plans. Last year it garnered $2.2 million in sales of ion exchange resins and specialty watertreating chemicals. But this doesn't include about $1 million worth of resins which it supplied to the industrial division. Robert Van Idersteine, who just moved into the general manager's slot, has set a lofty goal, believes he can mold his new charge into a $50 million business. A star performer in the Pfaudler Permutit stable is its international division, which was established last year to coordinate world-wide interests of the company. It accounted for 3 1 % ($19.1 million) of corporate sales in 1960. Overseas interests include five plants and two marketing or engineer-
NEW METALS. Titanium, tantalum, and zirconium are welded in this vacuum purge drybox at Pfaudler's Elyria, Ohio, plant. In addition to glass-lined process equipment, Pfaudler fabricates a variety of corrosion-resistant materials. About half of the company's present backlog at its Elyria plant involves reactive metals
POLYMERIZER. Equipment specialist at Pfaudler's Rochester plant is making the final adjustment on a 10,000 gallon Glasteel polymerizer. Sales of the Pfaudler division reached $28 million last year. The division's three major markets are the chemical and allied, brewery and beverage, and food industries MAY
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Process Equipment Is Pfaudler's Biggest Item Pfaudler Division
Permutit
Division
International Division (includes unconsolidated companies)
Products Glasteel process equip- Water and waste treat- Glasteel process equipment equipment ment ment Alloy process equipment
Ion exchange resins
Alloy process equipment
Process machinery
Specialty chemicals
Water and waste treatment equipment
Metering controls Home water softeners
Markets
Chemical, pharmaGeneral industry, Chemical, pharmaceutical, synthetic chemical, public utilceutical, brewery, genrubber and plastic, ity, municipal, coneral industry brewery, food and sumer appliances dairy, pulp and paper
Sales
$28 million 45.3%*
$14.6 million 23.5%*
$19.1 million 30.8%*
* Per cent of Pfaudler Permutit products sold throughout the world. Note: AeroChem Division accounted for 0.4% of sales in 1960.
ing companies in six different countries. Two of them came into the fold last year. Pfaudler signed an agreement with Krupp-Dolberg (West Germany) to market industrial centrifuges used to de-water pharmaceutical salts, starches, and coal sludges. It also established a firm in Sao Paulo, Brazil, to engineer, subcontract and import Permutit water-conditioning equipment for the Brazilian market. Although this operation is now small, Mr. Gaudion sees South America as a growth area. Pfaudler Permutit has whollyowned subsidiaries in Canada, West Germany, and Mexico and also owns half of Enamelled Metal Products in Scotland in addition to one third of Shinko-Pfaudler in Japan. All of these subsidiaries make the Pfaudler product line; Permutit exports its foreignbound products. But management isn't letting the international division rest on its laurels. The plan is to strengthen existing operations and to look for new growth countries. Two countries under consideration are India and Australia. Last week Pfaudler decided to hire native Indians and train them in Japan. They would then return to India to study the possibility of building a plant there. Pfaudler may do the same thing in Australia. 26
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Meanwhile, it is moving to integrate the Permutit line into overseas plants. Herbert Sliger, Permutit's export manager, just returned from a year's stint in Japan, where he helped set up shop to produce Permutit products. Now another water-treatment expert, Charles Bueltman, is heading for Japan to take over. This same program has been carried out in Mexico and specially selected personnel are being readied for Europe. The program was delayed until the company felt it had the proper management structure to carry it out. And besides, chortles Mr. Gaudion, until now the brains were needed at home. When Pfaudler Permutit acquired AeroChem last year, Mr. Gaudion admits it was "crapshooting" with a little money. AeroChem, a group of 26 specialists in Princeton, N.J., does research on propulsion systems, effects of combustion on heat transfer, and ionization in flames. About 98% of its $400,000 in contracts comes from the Government.
$1.5 Million for Research. In light of management's prerequisites for expansion—closely allied products and a promising increase in per-share earnings—AeroChem might seem a poor choice. But Mr. Gaudion holds strongly that the company that isn't basic in research will be dead in 20
years. And one day, some of AeroChem's work on burning, flames, and combustion might tie in well with Pfaudler's current research in high temperature materials. AeroChem, with its government contracts, may well fulfill another function. Mr. Gaudion says that since so much industrial and academic research money now comes from the Government, he has set a corporate goal for research funds—half from the stockholders and half from the Government. This year, Pfaudler Permutit will pour $1.5 million (company money) into research; it was only $800,000 two years ago. Hopefully, the company plans to keep about 3 % of its sales dollar for research and aims for a like amount of governmentsponsored research. Meanwhile, the Pfaudler Division has started to reap benefits from its own research. Its fabricated material list is no longer limited to glass-lined steel, but includes many alloys and metals such as titanium, zirconium, and tantalum. In fact, about half of the present backlog at its Elyria, Ohio, plant involves such metals. Last year, Pfaudler unveiled Nucerite, a product of nearly 10 years' research (C&EN, Sept. 26, 1960, page 121). Nueerite is a ceramic-metal composite which can be used at extremely high temperatures and in corrosive environments. The company is just starting to make equipment fabricated with Nueerite in semicommercial amounts and for the time being, says Mr. Gaudion, it will sport a relatively high price. This policy will give Pfaudler time to collect actual production cost data, yet help offset research costs. Pfaudler doesn't know yet just what its market potential is, but requests for information have been pouring in from markets it hadn't even considered: auto mufflers, stove gratings, rotary pump seals, in addition to chemical process equipment. With its policy of streamlined management, external growth based on good per-share earnings, and research, Pfaudler Permutit's earnings per share have increased from $1.15 in 1950 to $3.62 in 1960 (recently released first quarter earnings are also up over last year). But back in 1954, several stockholders wanted to sell out to large companies. Mr. Gaudion has kept an earnings scorecard on those companies that wanted to buy Pfaudler, willingly displays it to show that the get-bigyourself approach was best.
