Go where the growth is - Sara Lee, Motorola, GE, Comcast, NBC

If you can't sell products, I guess you sell the business to generate revenue.  That seems to be the approach employed by Sara Lee's CEO - who has been destroying shareholder value, jobs, vendor profits and customer expectations for several years.  Crain's Chicago Business reports "Sara Lee to sell air care business for $469M" to Proctor & Gamble.  This is after accepting a binding offer from Unilever to purchase Sara Lee's European body care and detergent businesses.  These sales continue Ms. Barnes long string of asset sales, making Sara Lee smaller and smaller.  Stuck in the Swamp, Ms. Barnes is trying to avoid the Whirlpool by selling assets - but what will she do when the assets are gone?  For how long will investors, and the Board, accept her claim that "these sales make Sara Lee more focused on its core business" when the business keeps shrinking?  The corporate share price has declined from $30/share to about $12 (chart here)  And shareholders have received none of the money from these sales.  Eventually there will be no more Sara Lee.

Look at Motorola, a darling in the early part of this decade - the company CEO, Ed Zander, was named CEO of the year by Marketwatch as he launched RAZR and slashed prices to drive unit volume:

Chart supplied by Silicon Alley Insider

Motorola lost it's growth in mobile handsets, and now is practically irrelevant.  Motorola has less than 5% share, about like Apple, but the company is going south - not north.  When growth escapes your business it doesn't take long before the value is gone.  Since losing it's growth Motorola share values have dropped from over $30 to around $8 (chart here).

And so now we need to worry about GE, while being excited about Comcast.  GE got into trouble under new Chairman & CEO Jeffrey Immelt because he kept investing in the finance unit as it went further out the risk curve extending its business.  Now that business has crashed, and to raise cash he is divesting assets (not unlike Brenda Barnes at Sara Lee).  Mr. Immelt is selling a high growth business, with rising margins, in order to save a terrible business - his finance unit.  This is bad for GE's growth prospects and future value (a company I've longed supported - but turning decidedly more negative given this recent action):

Chart supplied by Silicon Alley Insider

Meanwhile, as the acquirer Comcast is making one heck of a deal.  It is buying NBC/Universal which is growing at 16.5% compounded rate with rising margins.  That is something which suppliers of programming, employees, customers and investors should really enjoy.

Revenue growth is a really big deal.  You can't have profit growth without revenue growth.  When a CEO starts selling businesses to raise cash, be very concerned.  Instead they should use scenario planning, competitive analysis, disruptions and White Space to grow the business.  And those same activities prepare an organization to make an acquisition when a good opportunity comes along.

(Note:  The President of Comcast, Steven Burke, endorsed Create Marketplace Disruption and that endorsement appears on the jacket cover.)

Comments

[Rodney Johnson]

I'm concerned there is a big issue here, how GM trains its leaders. Just look at the chosen few that were vying to succeed Jack Welch. These being Immelt - the chosen one, Nardelli, who ended up losing billions for Home Depot and Chrysler, and McNerny who had a shaky stay at 3M and is now heading up Boeing.

Immelt is a byproduct of his leadership training and development. I wrote this over at my blog back in March

"Over the past decade, GE has been a source of World Class leaders for numerous companies. For instance, Jeff Immelt, James McNerney and Robert Nardelli were each hoping to receive the nod from Jack Welch upon his retirement. Jeff Immelt was selected. Although in the past year, GE’s stock price has experienced a 75+% decline. James McNerny became the CEO of 3M and now heads up Boeing. Boeing’s stock price has declined upwards of 65% in the past 12 months. And Robert Nardelli moved over to Home Depot where his tenure was suspect and now heads up Chrysler, which is flirting with bankruptcy.

Here is the question. In the future, will the perceived value of leaders emerging out of GE be tarnished?"

I think smart boards that are looking for fresh leadership,should shy away from candidates coming out of GE.

[Adam Hartung]

Really interesting observation Rodney. Thanks for your comment!

[Paul Hobcraft]

I think you are right about Sara Lee but also there are a fair number of US dependent consumer goods companies in for tougher times where they will eventually shrink down to niche players within 10 years or earlier. Far too much preoccupation with the US market and dependence will continue to erode their margins, sap their ability to conduct research and deflect them from seeing beyond this US market. Taking the 'adapting' model of products that sell in the US abroad is a flawed model.

[adam hartung]

Excellent comment Paul. These companies have to become a lot smarter about non-U.S. markets if they want to grow and be profitable!