A Company That's Doing It Right

 | Apr 05, 2012 | 11:16 AM EDT
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Lots of people get mystified when I say that a company is a poor executor of its operations. I have been critical of so many management teams. I blasted SanDisk (SNDK) management yesterday for being inconsistent. I've been overtly critical of the Avon Products (AVN) team for not being able to deliver on behalf of shareholders. And despite the rise in Bank of America's (BAC) stock this year, I am deeply perturbed at the execution of that bank's plan to return to health after the hideous Countrywide acquisition and the horrid lending standards of both the original Bank of America and its successor, which includes Countrywide.

The pushback I have been getting on these judgments isn't critical about the managements that I have selected to be harsh on -- most agree with my choices. It is much more a sense of, OK, what does it mean to execute, and who is executing well?

First, execution means having a strategy, being strategic in large-scale decisions and then prosecuting the tactics that make the strategy pan out.

Who's performing both tasks perfectly? How about Chuck Bunch, a frequent guest of "Mad Money," who is CEO of PPG Industries (PPG), the old Pittsburgh Plate Glass. There was a time, at my hedge fund, when on every tick down in housing or autos I would buy puts on this company. I knew that the glass in the cars would be backed up and that the paint division alone could bring down earnings.

When Bunch came in, he looked at the pastiche of businesses and decided, strategically, that he would steer PPG away from commodity businesses with low multiples and toward proprietary businesses that the stock market values much more because they have higher margins. He picked industries that had pure growth paths, such as high-performance plastics for aerospace as well as new kinds of glasses for optical wear. Most important, he expanded overseas as the parochial Pittsburgh Plate Glass became PPG. He embraced Europe and Asia to hit growth markets as the U.S. stagnated. All terrific strategies.

A well-thought out strategy, however, doesn't get you far if you don't execute on the tactics that fulfill the strategies. Bunch has excelled in the tactical, coming up with superior architectural and automotive coatings. Their products are so superior that the best automakers in Asia have embraced PPG's products, the gold standard of the business. At the same time, though, Bunch has been tough as nails. When Europe turned down, he trimmed and cut. The 2,000 layoffs he announced today, despite the profit explosion that allowed him to preannounce better-than-expected earnings, were largely contained to slowing European markets.

Finally, Bunch is one of the most shareholder-friendly execs out there. During the downturn, doubters thought this was the same old PPG and that perhaps it would even have to cut its dividend. Instead, Bunch steered the company toward dividend increases, and at one point we had a real accidental high-yielder on our hands.

How good a job has he done? I think that if you Google "business execution," Bunch should be first in the queue. It doesn't get any better than that.


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