George Putnam, editor of highly acclaimed The Turnaround Letter, highlights four top turnaround candidates from diverse industries—beauty products, medical devices, food, and finance; the common factor among these ideas is that they are all being run by new CEOs.
Steve Halpern: Joining us today is George Putnam, editor of The Turnaround Letter. How are you doing today, George?
George Putnam: Fine, thanks, Steve.
Steve Halpern: Well, thank you for joining us. As a specialist in turnarounds, you’ve screened companies for a wide variety of different characteristics. You recently reviewed companies where there’s been a change in top management. Could you explain your thinking here?
George Putnam: Sure. We often like to see a change in the top management because, when a company’s troubled, very often, the management that gets them into trouble won’t be able to get them out of trouble. A new CEO can be a very positive sign.
Steve Halpern: Now, interestingly for this report, you focus on the class of CEOs who took over struggling companies in 2012. Could you explain why you selected that timeframe for this study?
George Putnam: Yes. Even the greatest new CEO can’t make all the changes they want right away. We figured that one year to one-and-one-half years or two years would be a good timeframe to get the proper changes made and get the company headed back in the right direction.
Steve Halpern: Let’s first look at Avon Products (AVP) where the board brought in Sheri McCoy in 2012 as the new CEO. What’s happening at Avon now?
George Putnam: They have a wonderful brand but they’ve struggled for the last, really, ten to 15 years.
The CEO is simplifying the sales process, reducing costs. She’s also cleaning up a scandal in China that has plagued the company for several years.
Steve Halpern: Now, also in 2012, a new CEO named Michael Mahoney took control at Boston Scientific (BSX). What’s the story behind this company, which, I believe, is a medical device maker?
George Putnam: Right. They’ve been struggling, really, since 2006 or 2007, when they made a huge acquisition that didn’t work out very well. They took on a huge amount of debt. Then they’ve had some product problems.
The new CEO has come in. He’s refocused the company on its real strength, which is innovative R&D. They’re bringing out interesting new products and they’re paying down the debt to a much more manageable level.
Steve Halpern: Now, at Dean Foods (DF), Gregg Tanner was brought in as the new CEO, also in 2012. What’s happened since he’s stepped in there?
George Putnam: Well, there are some similar issues there. They acquired a number of other dairy producers over the last, say, ten years. They took on a lot of debt. They also tried to branch out into some other business.
He’s come in, sold off of non-core businesses, and used the proceeds to reduce debt so they can focus on the dairy business where they have a strong national presence.
Steve Halpern: Finally, let’s look at a company that most everyone is familiar with, Citigroup (C). The company’s undergone a lot of changes since the financial crisis hit in 2008, including appointing Michael Corbat to the CEO position. What’s the outlook for the banking giant now?
George Putnam: I think it’s probably favorable. They, for some reason, put a hedge fund guy in as the CEO several years ago and, while he made progress bringing back the business after 2008, it came back in fits and starts.
Now they’ve brought in a banking veteran for the company who is figuring out which businesses to keep and which ones to sell. They have such a good global brand and so many places where they can make money that I think they will begin to gradually move up again.
Steve Halpern: Finally, just to clarify for our listeners, you’re not focused on short-term trading here. You have a very long-term, patient approach. What type of timeframe would you suggest that investors take when they establish positions in the turnarounds that you talked about?
George Putnam: I think a one-to-three-year timeframe is reasonably good, particularly with turnarounds. They can take a little longer than some other types of moves. You do have to be very patient.
Steve Halpern: It’s fascinating to talk to you. You always have such good ideas for our listeners. I appreciate you taking the time today.
George Putnam: Thank you, Steve.
