• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

Firms Serving Basic Business Principles Dominate List of Area All-Stars

Posted on: Monday, 18 July 2005, 18:01 CDT

Jul. 18--No up-to-the-second dictionaries of industry jargon are necessary to understand the top companies in this year's All-Stars. Call it back to the basics.

From No. 1 Commercial Metals, a scrap recycler and steel producer, to No. 2 XTO, an oil and gas producer, to No. 6 7-Eleven, the convenience store folks, 2004 was the year the perennials bloomed. With the economy neither booming nor busting, the stock market neither bullish nor bearish, the companies that serve basic needs earned the top spots of the Tarrant All-Stars, the Star-Telegram's annual ranking of area public companies.

Consider the industries: There are four oil companies, two companies tied to home building and two in pharmaceuticals, along with Commercial Metals and 7-Eleven. About the only company that doesn't fit the bread-and-butter theme is No. 4 UICI of North Richland Hills, a specialty health insurer.

The year's big winner is energy. Four of the top 10 and nine of the top 20 among this year's All-Stars are energy companies, as crude oil prices have set records and natural gas prices have been strong.

The number of active drilling rigs in the country is at its highest since 1986. The world petroleum market has showed the strongest growth since 1978, led by China's huge 20 percent jump in crude oil demand.

And that all means higher prices.

Perhaps that is why that, even as energy companies did especially well on this year's Tarrant All-Stars, among all companies, 2004 was on average a little tougher financially for most companies than 2003, although not disastrously so.

In 2004, 18.2 percent of the companies on the list failed to earn a profit, compared with less than 15 percent the year earlier. Also last year, just under 62 percent of companies reported higher profits, not as strong as the more than 67 percent in 2003.

Over in the oil patch, meanwhile, all but one of the 10 petroleum producers enjoyed higher profits, and even the laggard, Irving's Pioneer National Resources, still earned $312.9 million last year. The petroleum industry's median increase in profits was 36.6 percent, compared with 22.5 percent for all profitable companies last year. Half of the profitable companies have more than the median, and half have less.

That's a local perspective on the stock market's lackluster performance last year, when the Dow Jones industrial average eked out a 3.1 percent gain after 2003's big year. Among the All-Stars, 28 percent saw their market capitalization fall last year, compared with just 11 percent in 2003. Market capitalization is the value of all a company's outstanding shares.

But energy companies were able to defy the rest of the economy.

Steve Brown, director of energy economics at the Federal Reserve Bank of Dallas, said crude oil prices roughly doubled since early 2003. Natural gas prices have more than tripled since 2000.

"That's a tremendous boost," he said. And it's coming at a time when the Organization of Petroleum Exporting Countries "is producing, as far as we know, at about full capacity," Brown said.

That hasn't typically been the case, he said. There was always the knowledge that OPEC could open up the spigots, push some more crude oil on the market and ease prices down.

"As we moved to full capacity, that created more of a risk premium, or speculation, of $10 to $15 a barrel," Brown said. Just the possibility of a major producer like Venezuela, Nigeria or Iran being knocked off-line by a political or social upheaval has the market on edge. That, together with high demand, has helped ensure higher prices, he said.

No surprise, then, that petroleum producers ranked so highly. Revenue at the nine energy companies that made the top 20 rose an average of 34 percent, ranging from a low of 20.8 percent at Exxon Mobil to a high of 63.7 percent at XTO.

A roaring home-building market likewise helped raise D.R. Horton and Countrywide Financial into the top 10. Continued low interest rates and rising home prices have meant plenty of business for Countrywide, the nation's biggest mortgage lender, and D.R. Horton, the nation's largest home builder.

D.R. Horton has been a regular in these rankings for years, as it has compiled an unequalled record of growth and consistent profits.

Countrywide makes its first appearance on the All-Stars list due to its purchase of the former Motorola facility in north Fort Worth for use as a loan serving center. It now employs nearly 1,000 people there.

The home-building market got a surprising boost last year when mortgage rates remained below 6 percent despite the Federal Reserve's yearlong increase in short-term rates. Fed Chairman Alan Greenspan testified before Congress that he had no explanation for why the bond market, along with mortgages, hadn't also risen, but with historically favorable rates Americans bought a record number of homes last year and continued the trend in 2005.

The refinancing boom of 2002 and 2003 finally cooled, but new mortgage originations picked up. According to the Mortgage Bankers Association of America, new originations totaled nearly $1.5 trillion last year, including three quarters that ranked in the top four.

At the other end of the spectrum, retailers generally lagged despite last year's robust 6.7 percent increase in U.S. retail sales, the best since 1999. J.C. Penney was a distant second to 7-Eleven at No. 24 on this year's All-Stars list, while The Bombay Co. came in next to last, as lower sales and a net loss for the year put the specialty retailer's stock price down 31 percent.

Penney rode a turnaround that stabilized sales and income, producing a 56 percent gain in the company's market capitalization. That category accounts for 40 percent of the ranking, giving Penney an outsized boost.

Wal-Mart, the world's largest retailer, outpaced the market yet again with an 11.3 percent sales gain and strong profits. But public relations problems hit the company's stock price, giving it a decline of 2 percent in that important category and a No. 34 ranking.

All three grocers on the list -- Albertsons (No. 48), Safeway (No. 55) and Kroger (No. 59) -- owed their relatively poor rankings to their ongoing battle with Wal-Mart. Albertson's did the best job ringing up both sales gains and profits, although its stock gain was middling.

Bombay and Pier 1 Imports (No. 54) struggled to find the magic formula to lure shoppers to their accessories-oriented stores, a bit of a disappointment given the strong housing market, which usually boosts home furnishings sales. It's little solace that they're in good company, as stores like Pottery Barn and Ethan Allen likewise are having trouble finding a niche.

Pier 1 also suffered from an unsuccessful promotional campaign, which it now is addressing, while Bombay relaunched its online merchandising program with help from Amazon.com.

Bringing up the rear was Precis, which sells memberships in a medical discount network. The Grand Prairie company lost $1.9 million in 2004 as its membership rolls fell by 30 percent, partly because of a requirement that members contribute to escrow accounts.

The accounts would help assure participating medical providers that Precis members can pay their medical bills. The accounts have proved unpopular however, and recently the company was sued by the state over its disclosures to customers.

1: COMMERCIAL METALS CO.: IRVING -- If ever there was a year to be in the steel business -- and there haven't been many lately -- it was 2004.

Strong demand and tight supplies produced a market stronger than an I-beam, with steel prices nearly tripling in some cases. Irving-based Commercial Metals Co. made the most of it, as its profit rose nearly sevenfold in its past fiscal year. Couple that with big gains in revenue growth and market value, and it was enough to make the 90-year-old company No. 1 in this year's All-Stars ranking.

"The whole industry did well," Leo Larkin, an equity analyst at Standard & Poor's, said of the steel business.

But CMC has a business model that also helped its performance, he said.

CMC has diversified its holdings, moving into most segments of the global steel trade. The goal has been to smooth out operations in a cyclical industry by allowing a strong sector to balance out a weak one.

The diversification chain starts in scrap metal. CMC collects and sells it. But it also uses it in a copper tubing mill and four U.S. steel minimills, which melt scrap to make products like reinforcing bar and structural supports. If scrap prices fall, CMC's scrap business suffers, but its minimills benefit from lower costs.

Diversification continues after steel leaves the mills. CMC can sell steel directly to big customers. Or it can send the product to one of its fabrication yards, which can bend and weld it for a particular customer. Or CMC can sell the product in one of its more than 30 metal yards, described by one executive as "a Home Depot for general contractors."

Finally, what it doesn't make, it buys and resells. The trading division employs marketers around the globe to match up big buyers and sellers of alloys, ores and chemicals, arrange shipping and provide financing.

"Nobody else has all these, and nobody else has as much as we have," said Bill Larson, CMC's chief financial officer. Globalization and the Internet have turned metals into a world market, he said, "so you have to bring the service" that people want rather than just a price.

"We believe that this business model should help CMC to generate earnings over a cycle and protect it from any extreme volatility in steel or scrap prices," Goldman Sachs analysts said in a recent report.

The plan must be working. CMC has made money 27 straight years in an industry that has seen its share of booms and busts.

It got started in Dallas in 1915, when Russian immigrant Moses Feldman founded American Iron and Metal, a scrap-metal company. His son, Jake, took over in the 1930s and started buying related businesses in the 1950s. CMC went public in 1960 and continued its expansion, adding its first overseas unit, in Europe, in 1965. It has two facilities in Fort Worth, both on the north side.

The company has been a player in the world market for years, including three decades in China, where it now has three offices, said Murray McClean, chief operating officer.

In 2003, it bought a Polish steel mill, its first plant in Eastern Europe. Today CMC has facilities in more than a dozen countries and more than 10,000 employees worldwide, including about 450 at its North Texas facilities.

Just as CMC's production is diversified, so are its customers.

"If you picked the drivers of our business, construction would rank as high as any single item," Larson said. That includes road building, a big user of the reinforcing bar, or rebar, used to reinforce concrete.

According to Goldman Sachs, higher proposed federal spending on highways -- an increase of 35 percent from current levels -- "bodes well for steel-makers, particularly the minimills like CMC, Nucor and Steel Dynamics."

The construction market also includes China, which today uses only about half the steel per capita as the world average. And India, where steel use is less than 10 percent the world average. Or Poland, which has only 300 miles of highways for a nation of 40 million people and is also upgrading its building standards.

"There is a clear pattern of usage of metals as economies emerge," Larson said. "China, Vietnam, Eastern Europe -- it's on a scale we haven't seen before."

CMC employees have shared some of the resulting bounty. The company has profit-sharing and bonus programs that fluctuate with its financial results. Last year, contributions to profit-sharing and retirement programs more than doubled to $32.8 million from $13.2 million the previous year.

"It keeps our fixed costs reasonable and allows us to compensate people in good years. People stick with us because they see that," Larson said.

--Jim Fuquay

2. XTO ENERGY: FORT WORTH -- XTO Energy of Fort Worth has climbed up the list of Tarrant County All-Stars in a manner similar to the rise in the price of the natural gas it produces.

Last year XTO was No. 5 with a bullet. For 2004, XTO climbed to the runner-up spot behind Commercial Metals Corp.

There's not much mystery why. XTO spent much of the 1990s patiently building a powerhouse gas reserve franchise in the Freestone Trend and Cotton Valley fields of East Texas, Louisiana and Arkansas. XTO also is a major player in the Midcontinent field of Oklahoma and in the San Juan Basin of northern New Mexico and in the Powder River and Green River basins of Wyoming.

That major bet on natural gas enabled the company to cash in on the tripling of natural gas prices, which spent most of 2004 above $6 per thousand cubic feet.

Along the way XTO has become Texas' third-largest natural gas producer, trailing only Devon Energy of Oklahoma City and ConocoPhillips. XTO now out-produces Exxon Mobil in Texas.

XTO was fifth in its increase in total assets and growth rate, both at 69 percent. Its revenue of $1.9 billion placed it 41st on the list, but that figure was up 63.7 percent from 2003, ranking it fifth in revenue growth. Its market cap grew by 85 percent, one reason XTO was put on the Standard & Poor's 500 stock index at the end of the year.

XTO is no flash in the pan. The company went public in 1993 (then known as Cross Timbers Oil), and its stock has risen 22-fold since.

The company bolstered its reserve positions with more than $1 billion of producing properties purchased from Exxon Mobil and ChevronTexaco. That production enabled XTO to move to ninth place among Texas oil producers for the year.

Until this year XTO had stayed aloof from the growing natural gas play in the Barnett Shale. But in January, XTO paid Denver-based Antero Resources $700 million to become the second-largest producer in the field.

XTO Chairman Bob Simpson says that the company expects to drill up to 240 wells a year in the Barnett Shale over the next six years, with most of its properties in Tarrant, Parker and Johnson counties.

--Dan Piller

3. CAREMARK RX: With last year's acquisition of a large competitor, prescription benefits manager Caremark Rx saw its revenue soar and profit climb.

The purchase helped boost the Nashville, Tenn. company's revenue almost 185 percent, placing it third on the All Stars list.

Caremark became one of the nation's biggest drug benefits managers in March 2004, when it acquired AdvancePCS of Irving.

The company now handles prescription benefits for more than 2,000 employers, insurers and other health plan sponsors. That entails haggling for discounts from pharmacies and drug makers, designing drug treatment programs for chronic diseases and filling prescriptions through its mail-service pharmacies and a network of more than 59,000 drugstores.

Caremark's 2004 revenue reached $25.8 billion, up from $9.1 billion the previous year.

However, an apples-to-apples comparison -- including Caremark and AdvancePCS' combined results for both years -- reflects more modest gains. On that basis, revenue rose just 8 percent over 2003.

Looking ahead, the company expects to find big opportunities in 2006 when Medicare begins providing prescription drug benefits to elderly and disabled Americans.

Caremark is hoping to nab a chunk of that new business, which will go to private companies that offer drug plans regionally or nationwide.

--Maria M. Perotin

4. BURLINGTON RESOURCES: Houston-based Burlington Resources can claim some hometown ties simply because of its 200 or so employees here and 93 wells in the Barnett Shale natural gas formation in Wise and Denton counties.

Some will recall that in 1986 Burlington Resources acquired the former Southland Royalty of Fort Worth. Three former Southland executives, Jon Brumley, Bob Simpson and Steffen Palko, then formed what is now XTO Energy.

Burlington Resources had a strong year. The company ranked No. 4 in the composite list of Tarrant Business All-Stars, bolstered by a 24.4 percent gain in return on equity (No. 10) and a 30.3 percent revenue growth rate (No. 13). It also ranked No. 3 in productivity, with $2.5 million in revenue per employee, and No. 12 in profit, with $1.5 billion, up $267 million from 2003.

Like other energy companies, Burlington Resources profited handsomely from crude oil prices above $50 per barrel and natural gas prices above $6 per thousand cubic feet.

Burlington Resources has production in the United States, Canada, the North Sea, Africa, China and South America. In the United States, Burlington Resources drills and produces in most of the major fields, including the Wind River Basin in Wyoming, the Williston Basin of North Dakota, the San Juan Basin of New Mexico, the Anadarko Basin of Oklahoma, and the Permian Basin and Barnett Shale fields in Texas.

During 2004, Burlington Resources averaged 33 million cubic feet of natural gas per day in production from its Barnett Shale wells, making it the third-largest producer in the formation behind Devon Energy of Oklahoma City and Chief Oil & Gas of Dallas.

--Dan Piller

5. UICI: From auto mechanics to hairdressers, entrepreneurs provided the basis of specialty insurer UICI's strong 2004 results.

The North Richland Hills-based company, which sells low-cost health plans with limited benefits, booked most of its gains at the subsidiary that targets self-employed buyers of health insurance.

The performance propelled UICI to No. 5 on the All-Stars list, largely because of significant growth in its market capitalization. That's up dramatically from its previous ranking of No. 72.

Chief Executive Bill Gedwed said the results reflect decisions to shed a credit-card operation, a student-loan division and other remnants of its venture into financial services.

"There were a lot of investments in noninsurance operations that had, over the last several years, clouded our performance," he said. "What we've done now is revert back to our core business. We're really focused on being a health insurance company."

More recently, Gedwed said, the company has been focusing on its newest product: a suite of high-deductible, "consumer-driven" health plans introduced this year in several states.

The plans account for as much as 30 percent of sales in some markets, he said.

Last year, the company reached a deal to settle numerous lawsuits concerning sales through nonprofit associations that had contracts with UICI.

But now it faces renewed scrutiny from insurance regulators, who this spring launched a multistate review of its subsidiaries' business practices.

Gedwed said the company is cooperating with the inquiry and is making changes to ensure that customers understand the details of the insurance policies that they're buying.

"We're investing quite a bit of our capital into building up our infrastructure to provide the support to our customers," he said. "We're also trying to build a better relationship with regulators."

--Maria M. Perotin

6. 7-ELEVEN: The Slurpee turns 40 this month, and 7-Eleven, which sells 13 million of the big, slushy drinks every month, couldn't be prouder. But the convenience store chain is also aiming for a bit more sophistication these days, with an improved selection of salads, sandwiches and other fresh goods geared toward on-the-run consumers.

"They did about $600 million in fresh-food revenue last year, and they have the potential to add $1 billion or more in fresh-food revenue over the next five years," said Southwest Securities analyst Michael Coleman, who has a "strong buy" rating on the stock.

Coleman also likes the company's prospects in China, where it does business through an Asian affiliate, and applauds 7-Eleven's aggressive use of technology. The chain is experimenting with new software and radio frequency identification tags to help store managers make better merchandising decisions and provide shoppers added convenience.

Revenue at 7-Eleven rose 13 percent last year to $12.2 billion, helped by stronger sales including gasoline.

But the real drivers behind its No. 6 All-Stars ranking were its increased market capitalization and return on equity. Stockholders rewarded 7-Eleven in 2004 for its sales and earnings performance. Return on equity topped 27 percent.

Return on equity, which divides net income by common equity, is somewhat skewed for 7-Eleven because of losses several years ago that led to negative shareholders' equity, shrinking the denominator in the equation. Shareholders' equity turned positive in 2000 and has steadily improved since then, "but our equity count is probably a little bit smaller for the size company we are than it might otherwise be," said Carole Davidson, vice president of investor relations.

That said, investors have shown that they are satisfied with the company's progress, boosting the chain's market capitalization by 52 percent last year.

--Heather Landy

7. D.R. HORTON: D.R. Horton's strength is its ability to tap large swaths of land for future residential growth and find buyers as fast as it can build houses for them.

In the past three years, the nation's largest home builder has nailed down growth by increasing sales rather than buying competitors -- as it had in previous years.

That got Fort Worth-based D.R. Horton ranked No. 7 on the All-Stars list.

Last month, D.R. Horton reached a milestone that underscores the power of its growth when it was named a member of the S&P 500.

D.R. Horton builds in 21 states, selling to first-time and move-up buyers. The 27-year-old company went public in 1992 and from 1993 to 2002 grew mostly through acquisitions.

Today, Horton is focused on growth through increased home sales, spokeswoman Shannon Brooks said. Horton is also entering additional metropolitan markets, she said.

The opportunities to increase sales are many. For example, the company is one of the largest builders in Atlanta, but it only has a 2 percent market share there, Brooks said.

It is also able to hedge some risk with a record backlog of orders for new homes. Those sales orders grew to 45,263 in 2004, up 17 percent from 38,725 in 2003.

That demand also allowed the company to raise its prices 7 percent in 2004, putting its average home price at $252,000.

--Andrea Jares

8. MAGNUM HUNTER RESOURCES: Magnum Hunter Resources of Irving makes its farewell on the All-Star list at No. 8.

The company's sale to Cimarex Energy Co. of Denver for $645 million was completed June 7. Magnum Hunter, founded in 1995 with the merger of Hunter Resources and Magnum Petroleum, put itself on the block in 2004 when it hired an investment banker to help find a buyer.

Magnum Hunter ranked 11th among the All-Stars with a 34.5 percent asset growth rate, fueled in part by a new joint venture in the coal-bed methane gas formation of the San Juan Basin of northern New Mexico.

The company's earlier growth had come through its 2001 purchase of Prize Energy of Grapevine.

Earlier, Magnum Hunter grew through purchases of former Burlington Resources properties in West Texas, plus other properties bought from Union Oil Co. and Vastar Re-sources.

In 1999, Magnum Hunter entered the Gulf of Mexico drilling territory in the shallow-water shelf off the East Texas coast and Louisiana, hitting 16 wells in 20 attempts.

Strong crude oil and natural gas prices in 2004 enabled Magnum Hunter to rank sixth among the All-Stars in revenue growth with a 51.9 percent gain and sixth in revenue per employee at $1.89 million.

--Dan Piller

9. COUNTRYWIDE FINANCIAL CORP.: Countrywide Financial slipped quietly into Tarrant County last year but quickly demonstrated why the company is considered the country's top home mortgage lender, edging into the top 10 of the Tarrant Business All-Stars.

Although the Calabasas, Calif.-based company's revenue growth was modest -- only 7.4 percent in 2004 -- its return on equity and growth in market capitalization were remarkable. Countrywide's stock surged 53.8, percent to $37.01 per share to close out 2004.

For the year, Countrywide became the largest originator of mortgage loans with a 13 percent market share, generating $363 billion in loans, according to Inside Mortgage Finance.

"Our market share leadership stems from our focus on mortgage banking, which is unique," Chief Executive Angelo Mozilo told investors at a conference this month.

Countrywide's expansion into North Texas is just starting. It has nearly 2,000 employees in Tarrant County. Most are at its new loan-servicing center in the Fossil Creek development in north Fort Worth.

In December, the company bought three former Nortel Networks buildings in Richardson to house loan processors, customer service and title appraisers. Countrywide plans to hire about 2,500 people for that facility in the next two years. By growing in Texas -- Countrywide expects to add 7,500 jobs here over the next six years, Gov. Rick Perry gave the company a $20 million economic incentive package.

With assets of $128.4 billion, annual revenue of $8.5 billion and net income of $2.2 billion, Countrywide is likely to remain a top performer in Texas for years to come.

--Andrea Ahles

10. EXXON MOBIL: Exxon Mobil isn't the dominant force it once was in Texas oil and gas fields, but the company remains near the top financially.

The Irving-based multinational ranked No. 10 among the Star-Telegram All-Stars. Exxon Mobil was first in revenue with $298 billion, first in net income with $25.3 billion and first in profit increase, up $4.37 billion from 2003. It was also first in market capitalization, with $328.1 billion.

Exxon Mobil's predecessor, Standard Oil, built much of its 20th century foundation on the Texas properties controlled by the old Humble Oil Co. But in the last decade, Exxon Mobil has sold much of its longtime producing properties in Texas in favor of newer prospects overseas.

In 1999, Exxon and Mobil combined to become the largest producer of natural gas and crude oil in Texas.

By 2004, after years of selling older producing properties, Exxon Mobil had dropped to No. 4 in the state.

Exxon Mobil operates in 125 countries, but it has put its heaviest international bet in Qatar, where it has begun what will be a $15 billion project to produce and ship liquefied natural gas for Europe and America.

Exxon Mobil Chairman Lee Raymond told shareholders that Exxon Mobil's LNG may provide up to 10 percent of U.S. daily consumption of natural gas by the end of this decade, easing increasingly tight domestic supplies.

--Dan Piller

-----

To see more of the Fort Worth Star-Telegram, or to subscribe to the newspaper, go to http://www.dfw.com.

Copyright (c) 2005, Fort Worth Star-Telegram, Texas

Distributed by Knight Ridder/Tribune Business News.

For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com.

CMC, XTO, SE, IYCOY, 8264, UCI, PXD, DHI, CFC, JCP, BBA, WMT, CMX, BR, MHR,

Source: Fort Worth Star-Telegram (Fort Worth, Texas)

More News in this Category