Letter #131: Dana Mead (1998)
Letter #131: Dana Mead (1998)
CEO, President, and Chairman of Tenneco | 1997 Shareholder Letter
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Today’s letter is Dana Mead’s 1997 Tenneco Shareholder Letter. In this letter, he starts by acknowledging Tenneco’s struggles, but shares why he’s optimistic about the future. He begins with a snapshot of Tenneco’s business at the time, dives into ongoing operations, reiterates the company’s vision and their commitment to continuing it, lays out their strategies for the next year, and pontificates on victory vs defeat.
Dana Mead was the CEO, President, and Chairman of Tenneco, a large conglomerate operating in 50+ countries with businesses in oil and gas transmission, shipbuilding, auto parts, packaging, chemicals, and more. When he first joined Tenneco, it had so much debt that bankruptcy was a legitimate concern, but Dana ended the bleeding, streamlined operations, and returned the company to growth mode with a series of moves including staunching the losses of certain business units (ie their agriculture equipment unit) and selling or spinning off other ones (gas-pipeline, shipbuilding, etc). By the end of his tenure, Tenneco had been named one of the 100 Best Managed Companies in the World four times. Dana retired from Tenneco in 1999 after spinning off their packaging business to shareholders. After retiring, Dana served as Chairman of the MIT Corporation (MIT’s Board of Trustees) from 2003-2010.
Prior to Tenneco, Mead was an EVP and Board Member of International Paper, and before that, he was a Professor and the Deputy Head of the Social Sciences Department at West Point. While at West Point, he served on the Pentagon teams writing the final chapters of the Pentagon Papers and Westmoreland’s Report on the War in Vietnam. He also served in the US Army line armor and airborne units in West Germany and Vietnam, retiring as a colonel. Between the military and his business career, Mead spent significant time in the White House as a White House Fellow, deputy director of the White House Domestic Council, and a White House Liaison to the District of Columbia.
Relevant Resources
Military Veterans
Apollo (Apollo acquired Tenneco in 2022)
Letter
To Our Shareowners, Customers, and Employees:
Tenneco faced a challenging year in 1997. Although earnings per share from continuing operations were up 65 percent from 1996, I am disappointed that it did not translate into greater shareowner value. Still, we accomplished a great deal in 1997, setting the stage for the future, and I am optimistic about our prospects for 1998.
Where We Stand: A Snapshot of Today's Tenneco
We began 1997 fresh on the heels of the creation of the new Tenneco. We had transformed the company from a highly diversified, struggling conglomerate into a focused, global manufacturer of automotive parts and packaging. Today our operating units are world leaders, and we enjoy strong brands, leading market positions, and proven management processes.
Our strategy to redeploy assets into less cyclical, higher margin opportunities continues to serve us well. Since mid-1994, we have invested $2.8 billion in more than 30 acquisitions and joint ventures in automotive parts and packaging. These acquisitions have contributed significantly to our revenue growth, our margin improvement, and our geographic expansion. They also have reduced the cyclicality of our businesses. In 1997, we continued our redeployment strategy and made several major acquisitions, including the following:
In April, we acquired the protective and flexible packaging operations of NV Koninklijke KNP BT for approximately $380 million. With overall sales of $542 million, this acquisition fits well with our highly successful Hexacomb operations. Combined, they create for Tenneco a foundation for international growth, with a broader range of packaging solutions for our customers, and a leading position in the higher-margin protective packaging business in both the United States and Europe.
In June, we announced a joint venture with Armstrong Holdings Limited, a subsidiary of Metair Investments Limited, to manufacture and market ride control products for automobiles and light commercial vehicles in South Africa. With 1996 sales of $30 million, Armstrong has some 60 percent of South Africa's original equipment market and more than 40 percent of its replacement market.
In August, we purchased Autocan, a Mexican manufacturer, for $12 million. Autocan supplies catalytic converters and downpipe exhaust assemblies for Chrysler, BMW, and Volkswagen, the largest passenger car maker in Mexico.
Ongoing Operations: Working from a Position of Strength
Tenneco's automotive parts and specialty packaging businesses posted record years in 1997, while our protective packaging sales have become the second largest in the U.S., and our paperboard business is poised for a major rebound. Among Tenneco's 1997 ongoing operations, several achievements stood out:
Tenneco Automotive raced to another outstanding year, earning all-time record revenues of $3.2 billion, up eight percent from a year ago. Tenneco supplies virtually every original equipment manufacturer in the world and, in the aftermarket, produces nearly three out of every ten mufflers and almost half of all shock absorbers and struts installed worldwide.
Tenneco parts are on each of the ten most popular sport utility vehicles, minivans, and light trucks sold in North America. Looked at another way, Tenneco sold more than 32 million mufflers in 1997, more than one per second, for every minute of the year. We sold more than 55 million shocks, enough to outfit nearly every vehicle made in North America in 1997.
Specialty packaging also wrapped up a record year, earning $2.6 billion in revenues, up 29 percent. We sold more than 1.25 billion Hefty OneZip® bags in 1997, enough to hold 720 million gallons of liquid, or fill a freight train more than 380 miles long. We sold 19 million E-Z Foil® roasting pans, enough to prepare Thanksgiving turkeys for every household in California and New York combined.
Consolidated operating income increased 22 percent in 1997 to $764 million. Automotive completed its third consecutive year of record operating income, earning $407 million, a 63 percent improvement over 1996. Led by growth in its consumer product segment, specialty packaging's 1997 operating income improved 27 percent to a record $307 million.
Diluted earnings per share from continuing operations rose to $2.11 in 1997 from $1.28 in 1996. We reported good quarterly earnings through the third quarter, and although fourth quarter performance improved over the previous year's, a combination of several factors - none
significant in itself - held our fourth quarter earnings below expectations. These factors included a weaker-than-normal seasonal North American aftermarket for automotive parts; delayed pricing improvements in corrugated packaging; effects of a strong U.S. dollar on non-U.S. earnings; and non-recurring charges, which should result in lower costs in 1998. Our announcement in early December that the quarter would be lower than expected led to a sharp decline in our share price at year-end. Before then, our stock had shown good growth, and with the strong 1998 we project, should recover as most analysts forecast.
One Company: Managing for Value
From the beginning of Tenneco's transformation, our vision has been simple and straightforward: to create a growing multi-industry company with global leadership, to take the resources entrusted to us by our shareowners and manage them as effectively and efficiently as possible, and to be one of the best-managed companies in the world. In short, to build shareowner value. This continues to be our overriding goal today.
In recent years, we have laid a strong foundation for building value by successfully redeploying capital, establishing operating cost leadership, and aligning our organizations more closely with our customers. At the same time, we have helped employees achieve our joint goals by focusing on action, integrity, and leadership. Some evidence of our success lies in the public recognition of our results:
For the second consecutive year, Tenneco was recognized by Industry Week magazine as one of The World's 100 Best Managed Companies.
Automotive's ride control plant in Paragould, Arkansas, was named by Industry Week as one of America's Ten Best Plants for 1997, the second year running that a Tenneco plant received this distinction.
Five of Automotive's North American plants received the Chrysler Gold Pentastar Award for quality; three of Automotive's European plants received the Nissan NX96 Award for overall excellence in quality, cost, delivery, development, and management; and Automotive's Iberica plant in Valencia, Spain, received Ford's Q1 Award for total quality.
Packaging's Valdosta, Georgia, mill earned the American Forest Products Association's 1997 Safety Award, while several of Packaging's European plants picked up design awards, including the Grand Prix Cyrel Award for innovative flexible packaging technology.
But while our progress to date has been good, it must be better. With the major strategic and structural actions completed, we must now deliver outstanding operating performance. Today, we are positioned to build additional value through growth in our baseline businesses, global expansion, and the wise use of resources. We are seeking world-class performance at Tenneco, and we will reach it by building on our record and continuing to improve.
The Challenge: We Can Get There from Here
Our strategies for 1998 can be summed up in five statements:
Stay the course -- generate high-quality earnings from a single, seamless company.
Perform efficiently and effectively -- continue to implement and improve our signature management processes in everything we do.
Concentrate on internal growth -- integrate our acquisitions and continue to innovate in our products to enhance organic growth.
Continue to focus on improving costs, cash flow, margin, and value -- improve our cash flow and margins in every business.
Build for future growth -- foster a technological culture capable not just of managing change, but of leading it.
Our Destination: Toward a Brighter Future
Sir Winston Churchill, following years of struggle, observed that the problems of victory are more agreeable than the problems of defeat -- but they are no less difficult.
At Tenneco, we have labored hard to achieve our agreeable position. In the past five years, we have pulled ourselves back from the brink and positioned your company for success both today and in the new millennium. Our redeployment strategy is working well. We travel a better road now, and while the challenges ahead are no less difficult, we stand today better prepared to meet them.
Tenneco's nearly 50,000 employees around the world are excited and energized, ready to achieve the high goals we have set for 1998. We will work very hard to exceed them.
Dana G. Mead
Chairman and
Chief Executive Officer
March 6, 1998
Wrap-up
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