New CEO Aims to Perk Things Up

In contrast to the rash of companies firing their chief executives lately stands PerkinElmer Inc., whose chief executive, Gregory Summe, is showing how to get the job done--even if it means reinventing an entire corporation.

In less than three years, the boyish-looking Summe, 43, has converted what was once a sluggish government contractor named EG&G; Inc. into the diversified, fast-growing and newly named PerkinElmer.

It adopted the name after buying the analytical-instruments and X-ray detection products lines--and the name--from the old PerkinElmer Corp. in 1999. Indeed, many of the “new” PerkinElmer’s products may be esoteric, but there’s no misunderstanding the company’s strong performance and the rally in its shares.

PerkinElmer’s stock has shot up 140% so far this year, although it pulled back $3.38 a share to close at $101 on Wednesday in New York Stock Exchange trading.

The stock appeals to investors in large part because PerkinElmer supplies test instruments and other gear for two of the economy’s hottest industries: drug research and biotechnology, along with fiber-optic networks for telecommunications.

The stock’s advance has created more than $3 billion of stockholders’ wealth this year alone. Even so, some analysts keep rating the stock a “strong buy,” believing that Boston-based PerkinElmer still enjoys strong growth prospects.

One is Paul Knight, an analyst at investment firm Thomas Weisel Partners in New York. “This stock is going to be a premier name in the S&P; 500,” where PerkinElmer is a component, he said.

A major beneficiary of PerkinElmer’s success is the University of California, which is one of the firm’s biggest stockholders with a 7.2% stake, or 3.3 million shares, according to the company’s most recent proxy statement.

The university initially took the big position in EG&G; but, “as the company was transforming, we really liked what was going on, so we thought it was something we should hold on to,” said Gary DeWeese, a UC investment officer. Still, he said, the university has sold a portion of its PerkinElmer holdings this year to take profits, though he declined to be more specific.

Given Summe’s background, PerkinElmer’s turnaround is not completely surprising. Summe previously held top positions with AlliedSignal Inc. (now Honeywell International Inc.) and General Electric Co., two giant companies known for their disciplined management, intense cost controls and insistence on building leading market-share positions to achieve financial gains.

That’s why PerkinElmer’s work force, now at 13,000, is down 10% since Summe took over. And the cuts bit into even the corporate staff: The executive suite found its numbers pared from 15 people to 10, and nine of those are new to PerkinElmer.

Summe and PerkinElmer also follow the GE and Honeywell tenet that, if any of their divisions are not among the top three players in their respective markets, then they are candidates to be cast off.

So PerkinElmer has jettisoned 10 businesses that it felt were also-rans, and it acquired seven others that it sees as providing rapid, high-profit-margin growth. One of the units sold, in fact, was the old EG&G;’s core business--technical services for government agencies. A cash cow, yes, but a business with thin profit margins, declining demand and slow growth.

“Our strategy is to continue to grow our most attractive businesses,” and that means “we’re more aggressive on the divestiture side than many companies out there,” Summe said in an interview.

Following the asset shuffling so far, PerkinElmer now consists of four main businesses:

* The instruments group, which makes complex devices for analyzing drugs, pollutants, foods and many other items, along with X-ray detection systems used by airports. One of the group’s plants is in Long Beach, where about 300 workers produce X-ray security devices.

* Optoelectronics, such as high-tech lighting and imaging products and fiber-optic testing gear used by telecom companies. The group, with about 1,000 employees, is based in Santa Clara, Calif., and has offices in Azusa and Covina, among other sites.

* Life sciences, which makes instruments and chemicals used by pharmaceutical and biotechnology firms for drug research.

* Fluid sciences, which makes a range of seals, valves, pneumatic components and other industrial equipment.

Summe pointed out that, although diverse, all the units are in high-tech industries and that PerkinElmer now expects each business to generate minimum revenue and earnings growth of 15% and 20%, respectively. Eventually, he said, PerkinElmer’s stock should command an even higher valuation not unlike many other leading technology shares.

In the first nine months of 2000, PerkinElmer’s earnings from continuing operations--excluding one-time gains and charges--totaled $73.5 million on sales of $1.2 billion.

Noting that PerkinElmer’s stock trades for about 35 times expected per-share profit for next year, Summe said, “That’s lower than a lot of comparable companies, especially in the life-sciences business.”

“I think we still trade at a conglomerate discount,” even though the stock has surged in the last two years, because investors are “still a little bit unsure as to how to treat us, because we’re diversified, though we’re much less diversified than we used to be,” he said.

Meantime, Summe is focused on building PerkinElmer’s existing product groups internally and through acquisitions. In July, the company made a big move toward bolstering its life-sciences division with the $400-million purchase of NEN Life Sciences, a leading supplier of products used by researchers to develop new drugs.

A few months earlier, it bought Vivid Technologies, a maker of weapons-detection systems for airport security points.

And PerkinElmer is positioned to be able to buy more companies, Summe said, because “we have a stronger currency with our stock, we have a stronger organization and a better ability to deliver our earnings and cash flow [as expected] on a regular basis.”

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Reinvented Stock

A new chief executive has transformed the old EG&G; Inc. into PerkinElmer Inc., which now makes cutting-edge drug-research products, X-ray security machines and industrial instruments. PerkinElmer’s stock has soared as a result.

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Weekly closes and latest on the New York Stock Exchange

Wednesday: $101, down $3.38

Source: Bloomberg News