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Non-Tech : Berkshire Hathaway & Warren Buffet -- Ignore unavailable to you. Want to Upgrade?

To: 249443 who wrote (161)	10/24/2001 7:15:38 AM
From: 249443	Read Replies (1) \| Respond to of 240

Gillette CEO must recharge Duracell unit: US$100M for promotion: Kilts under pressure to reverse four-year profit slide Financial Post - Canada; Oct 20, 2001 BY STEVE MATTHEWS globalarchive.ft.com BOSTON - James Kilts, Gillette Co.'s chief executive, has said he is determined to reverse falling profit by reviving sales of Duracell batteries, the company's second-largest business after razors. Some investors say Mr. Kilts, on the job for eight months, may not have much time to prove he has chosen the right strategy for ending a four-year profit slide that led shareholders, including Warren Buffett, to oust Mr. Kilt's predecessor a year ago. "They have to move fast," said Fredric Russell, president of Fredric E. Russell Investment Management Co., which owns about 50,000 shares. "Buffett is breathing down his neck. I imagine he is feeling the pressure." Duracell batteries accounted for more than a quarter of Gillette's US$9.3-billion in sales last year. While the company's razor and blade business commanded an 80% share of the US$1.2-billion U.S. market and increased profit 11% last year, Duracell's profit dropped 55% in the first nine months after falling 28% last year. "The Street is concerned: Where is the bottom?" said portfolio manager Vincent Muscolino of David L. Babson & Co. Mr. Kilts has put in new management at Duracell and increased the marketing budget for the unit's main battery line, CopperTop, by 40% this year. The strategy is showing early signs of progress. Third-quarter sales unexpectedly rose for the first time since last year as orders picked up. Duracell's share of the US$2.47-billion-a-year U.S. battery market increased to 49% in the 13 weeks ended Sept. 8 from 46% at year- end 2000, according to ACNielsen. Gillette's shares rose US$1.58 to close at US$31.30 yesterday. "We will take the actions necessary to stabilize Duracell," Mr. Kilts told investors at a New York meeting in June. "Our goal is to re-establish Duracell as a solid contributor to Gillette's growth." He declined to be interviewed. Gillette's stock has lost about half its value since a high of US$64.38 in March, 1999, and some big investors have bailed. Kohlberg Kravis Roberts & Co., which has invested more than any other buyout firm, sold most of its US$1.5-billion stake in July, even though director Henry Kravis, the firm's co-founder, is on Gillette's board. Mr. Buffett, who is chairman of Berkshire Hathaway Inc. and a Gillette director, said in April he would not sell his almost US$3-billion stake in the Boston-based company while serving as a director because "people would question whether we knew something they didn't." He declined further comment. Third-quarter profit at Gillette, which also makes Mach3 razors and Right Guard deodorant, fell 15% to US$296-million (US28 cents a share) from US$350-million (US33 cents) a year ago. Sales rose 2.3% to US$2.36-billion. Mr. Kilts, 53, was previously chief executive at Nabisco Holdings Corp. and joined Gillette after directors pushed out Michael Hawley. As the first outsider to head century-old Gillette in 70 years, Mr. Kilts will get a salary of at least US$1-million a year and a bonus of the same amount this year. He also has been awarded options to purchase two million shares at US$34.16 apiece, according to Gillette's proxy filing. Mr. Kilts said at the meeting with investors he was surprised by the disarray at Bethel, Conn.-based Duracell, which has lost 80% of its senior management and 75% of its marketing staff since Gillette bought it in 1996. "Employee turnover has been staggering," he said. "I've never seen anything quite like it in my entire career." Mr. Kilts recruited H.J. Heinz Co. executive Mark Leckie to head Duracell and renamed the unit's biggest-selling battery line CopperTop. Mr. Leckie is working with retailers to reduce shelf space for Duracell's Ultra line that is priced about 30% higher than CopperTop. Until this year, Duracell was giving almost half its space to Ultra even though it generated less than a quarter of sales. Mr. Kilts is also spending US$100-million to promote the main Duracell line this year, including the first television commercials in four years. Still, Duracell sales will lag retail sales this year as stores cut inventories of batteries from 13 weeks of supplies in North America to 10 weeks by year-end, said Mr. Kilts in June. Former management stuffed retailers with too many products to try to meet earnings forecasts, he said. U.S. battery sales, which were rising 8% a year from 1995 to 2000, have been stagnant in the past year and fell slightly in the month ended Sept. 8, according to ACNielsen. One reason: sales of portable audio-devices such as CD players dropped 10% in the first half, according to spokeswoman Christine Denning of rival Panasonic Battery Sales Group. "Duracell is not in the hole because of Jim Kilts," said portfolio manager Matthew Kaufler of Clover Capital Management. "When you get a leader from the outside take on a troubled but market-leading brand, the odds are in his favour."