A CEO with a good management team can take a languishing company and turn it into a growth machine in a position of market leadership with the capability of making shareholders rich in the process. However, some of these turnaround situations provide a great deal of extra risk stemming from the possibility of these grand plans not working out. The five companies presented below are headed by management teams looking to improve the standing of the companies under their stewardship.
Home improvement dissident
Home improvement retailer Lowe’s Companies, Inc. (NYSE:LOW) sits at the bottom in terms of profit margins (see table below) and total stock price return (see chart below) when compared to competitors such as The Home Depot, Inc. (NYSE:HD) and Lumber Liquidators Holdings Inc (NYSE:LL). While Lowe’s still beats the S&P 500 total return index with a 88% return it pales in comparison to the 673% from Lumber Liquidators.
| Metric | Lowe’s* | Home Depot | Lumber Liquidators |
|---|---|---|---|
| Gross Margin | 34.30% | 34.57% | 37.97% |
| Operating Margin | 6.21% | 10.39% | 9.63% |
| Profit Margin | 3.88% | 6.07% | 5.79% |
| Operating Cash Flow Margin | 7.45% | 9.33% | 5.81% |
| Free Cash Flow Margin | 5.31% | 7.64% | 4.17% |
| Cash to SE | 4.81% | 14.03% | 27.36% |
| Long term debt to SE | 65.17% | 53.30% | 0.00% |
| Total Debt to SE | 135.74% | 131.11% | 48.11% |
Compiled from SEC filings
*Bold represents unfavorable numbers
LOW Total Return Price data by YCharts
According to its latest earnings call (Log in required); Lowe’s current plans for improvement reside in inventory management and the devotion of store labor hours to customer assistance. It hired a new merchandising executive, Mike Jones, with experience in supply chain management at companies like GE and Husqvarna.
Lowe’s Companies, Inc. (NYSE:LOW) wants to increase sales through better “line designs”, improving inventory availability, and improving offerings based on regional and seasonal preferences. In addition, Lowe’s uses end cap displays to highlight new products and showcase by brand. Lowe’s expects to complete the new inventory configuration chain wide in 2013.
Lowe’s discovered that adding store labor hours on the weekends specifically for customer assistance paid off in the form of higher “close rates” or customers who walked out the door with sold merchandise. In 2013, Lowe’s plans to devote more store labor hours in the middle of the week where it sees an opportunity to boost customer assistance versus just simply tasking.
These improvement efforts combined with macroeconomic factors such as the housing recovery should translate into continued superior gains for Lowe’s Companies, Inc. (NYSE:LOW).
Beverage barbarians at the gate
Beverage company, Dr Pepper Snapple Group Inc. (NYSE:DPS) shows keen focus on taking its share of the beverage market pie. In 2012, beverage giant The Coca-Cola Company (NYSE:KO) showed the highest percentage of growth in revenue and profits; however, Dr. Pepper showed the widest expansion in margins (see table below).
| Metric | Coca-Cola Margins YOY % Change | Pepsi Margins YOY% Change | Dr. Pepper Margins YOY% Change* |
|---|---|---|---|
| Gross Margin | -0.89% | -0.52% | 0.68% |
| Operating Margin | 2.70% | -3.95% | 5.00% |
| Profit Margin | 1.84% | -4.55% | 2.20% |
Compiled from SEC filings
*Bold denotes largest amount
Surprisingly, Dr. Dr Pepper Snapple Group Inc. (NYSE:DPS)’s share price outpaced the other big beverage companies since its IPO over the past five years, returning 91% and surpassing Coca-Cola by 13% (see chart below).
DPS Total Return Price data by YCharts
Dr Pepper’s Rapid Continuous Improvement program empowers employees to cut costs by eliminating waste and inefficiencies. This will “continue” to drive margin improvement over the long term.
