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Holding a steady course amid turbulence

By WILL ASTOR
RBJ 75
Rochester Business Journal
July 23, 2010

For the RBJ 75, the past year's experience largely has served as living proof of the oft-repeated tenet that the Rochester economy neither soars as high nor sinks as low as other regions across the state and nation.

The area's leading companies and non-profit organizations generally have held a steady course through the severe recession following the economy's near-meltdown in autumn 2008.

The 75 companies and organizations on the RBJ lists did not massively reduce staff levels. As a group they employ 109,978 people compared with 110,327 a year ago-a decline of 0.3 percent. (These year-to-year comparisons factor out Morgan Management and GateHouse Media Inc., which did not supply employment numbers for both years.)

A trend evident for several years-jobs shifting to the non-profit sector and particularly to health care-continued over the past 12 months. The 25 non-profits in the RBJ 75 currently employ 60,772, up from 60,253 a year ago.

The public and private companies that make up the rest of the RBJ 75 employ roughly 49,000 people. As with the non-profits, employment was virtually level among privately held companies. By contrast, the publicly held firms shed more than 5 percent of their jobs.

In 2009, the RBJ 75 for-profit firms as a group had a sales decline. Public companies were off nearly 12 percent. Only nine of the 25 privately held firms on the RBJ 75 shared revenue figures; those nine collectively reported a 4 percent increase.

Though a number of firms posted red ink, 2009 profits of the publicly held firms looked considerably better than in 2008. Their combined net earnings were $697.5 million last year versus an $8 billion loss in 2008. The 2008 bottom line for public companies was pulled down by Gannett Co. Inc., which accounted for $6.6 billion of the group's red ink.

Wegmans Food Markets Inc. continues to top the private company list, which is based on number of local employees. Paychex Inc., which wrested the No. 1 slot from Xerox Corp. a year ago, continued to hold the top position on the public company list.

Employment
As a group, the private companies added 518 local jobs in the past year. Non-profits reported a net gain of 519. Public companies trimmed their staffs by 1,386.

Employment among non-profits on the RBJ 75 roster was essentially stable, with less than a 1 percent increase.

Collective staff levels among the 24 public companies reporting both years' employment numbers fell to 23,161 this year from 24,547 a year ago, a 5.6 percent decline. The 24 privately held firms that supplied employment numbers for both years gained workers, going from 25,527 last year to 26,045, a 2 percent increase.

For the region, health care is an increasingly strong sector. The University of Rochester remains the No. 1 employer. Its medical center and Strong Health organization-the region's biggest integrated health system-account for some two-thirds of UR's workers. The two next-largest non-profit employers are Rochester General Health System and Unity Health System, the area's second- and third-largest health systems.

Other RBJ 75 health care organizations include the Excellus BlueCross BlueShield affiliate, Lifetime Healthcare Cos. Inc.; the Ontario County health system, Thompson Health; United Memorial Medical Center in Batavia; and Finger Lakes Health in Ontario and Yates counties. In all, 13 of 25 organizations on the non-profit list are health care providers.

Fourteen of the 25 non-profits added a total of 1,028 jobs, while 11 reduced staff by a total of 509 workers.

Among non-profits, top-ranked UR added fewer than 200 jobs, growing from 19,441 a year ago to 19,610. Other non-profits adding jobs were St. John Fisher College, up 6 percent from 715 to 760; ESL Federal Credit Union, up 4 percent from 590 to 614; and the Hillside Family of Agencies, up 4 percent from 1,554 to 1,619.

HCR's 14.9 percent jump from 713 last year to 819 now was one of the largest percentage gains among the private companies. Others in that group that made big percentage gains were: Mark IV Enterprises, whose staff increased by 81 workers or 23.7 percent to 423; the Pike Co. Inc., which rose from 278 to 325 for a 16.9 percent gain; and Vision Automotive Group, up 13.9 percent from 237 to 270.

Among private companies, Wegmans' gain was the biggest by the numbers: 577

new workers brought its total to 13,858. Sutherland Global Services Inc., which added 106 jobs to bring total employment to 2,200, shared second place with HCR.

Twelve private companies shed workers, collectively eliminating 499 jobs. Two companies, Bausch & Lomb Inc. and LeChase Construction Services LLC, accounted for half of the reduction, losing 125 workers apiece.

Twelve of the RBJ 75 public companies added a total of 246 jobs, while another dozen shed 1,632.

Eastman Kodak Co. led the pack in reductions, cutting 1,100 jobs. Xerox was a distant second with 306 eliminated.

Paychex Inc. added the most workers-a gain of 102 or 3 percent to 3,431. IEC Electronics Corp. ranked second in hiring, adding 55 workers or 14.9 percent to bring employment to 425.

Earnings
Five of the 25 public companies in the RBJ 75 had earnings growth last year. In percentage terms, none of the gainers matched the 1,097 percent increase in net earnings booked in 2008 by IEC Electronics.

The three top-ranked public companies in earnings growth-in order, FSB Community Bankshares Inc., Seneca Foods and Xerox-had triple-digit increases in profits. FSB's 2009 profit of $100,000 was up 172 percent; Seneca Foods grew its bottom line to $18.8 million, up 134 percent; and Xerox's earnings jumped to $485 million, a 110.9 percent increase.

Seven of the 13 public companies that ended up in the red last year improved their bottom lines. Paetec Holding Corp. ended 2009 $28.7 million in the red, showing a 94 percent improvement over its $487.9 million loss-the group's biggest net loss reduction.

Of the three companies on the public company list to reverse 2008 losses-Gannett, Constellation Brands Inc. and Financial Institutions Inc.-Gannett made the biggest comeback, rebounding from a loss of more than $6 billion to a $355.3 million profit.

Return to shareholders
A rebound in equity markets from their steep decline at the end of 2008 contributed to a marked increase in one-year return on investment for the RBJ 75 public companies. Nineteen of the 25 firms gave a positive return to shareholders last year. That compares to two of 25 in 2008 and 16 in the previous year.

GateHouse Media led the pack with a 400 percent one-year return. NaturalNano's 333 percent return was second. In 2008, shareholders of GateHouse Media saw negative returns of 99.5 percent. NaturalNano shareholders' return in 2008 was minus 97 percent.

Monro Muffler Brake Inc., which led the group in total return to shareholders last year at 32.4 percent, placed 11th on the list this year with 32.7 percent.

On a five-year basis, 12 of the public companies show negative returns. Ten are in negative territory on a 10-year basis. IEC Electronics' 57.9 percent annualized return is the best of the group on a five-year basis. Graham Corp. is best over 10 years with a 32.6 percent annualized return.

Kodak, which had a one-year return of negative 68 percent in 2008, returned a negative 35.9 percent for 2009. Its five- and 10-year returns also are negative: 32.1 percent and 21.8 percent.

Sales
As a group, the RBJ 75 public companies lost ground last year; their combined revenues fell by $5.3 billion or 11.6 percent, from $45.8 billion in 2008 to $40.5 billion. It was the second consecutive year of revenue declines for the group. The 2009 decline followed a drop of $1.7 billion or 3.5 percent in 2008.

Eleven of the 25 RBJ public companies boosted revenues. In 2008, 18 companies saw revenues rise.

The biggest percentage gainer was Document Security Systems, up 49.2 percent from $6.6 million in 2008 to $9.9 million in 2009.

NaturalNano, which had the biggest sales gain in 2008-a 1,682 percent increase in revenues from $15,250 to nearly $300,000-lost ground in 2009, seeing a 70 percent decline to some $100,000. Biophan ranked last on the 2010 RBJ 75 sales list with a 94.2 percent decline in revenues from $11.7 million to some $700,000.

Xerox's sales declined nearly 14 percent, but it retained the top spot in net sales with $15.2 billion versus $17.6 billion in the prior year.

CEO compensation
Despite large percentage drops in compensation for some of the RBJ 75 public company CEOs, the group's combined pay rose nearly 35 percent. The CEOs' compensation in 2009-including cash payments, bonuses, the value of stock and option awards, and other compensation-totaled $64.6 million, up $16.7 million from $47.9 million in the previous year.

Robert Gross of Monro Muffler was the most richly rewarded of the top 25 public company CEOs in 2009, collecting $13.2 million-more than six times the $1.8 million he received in 2008. His pay package included $10.6 million in value realized from stock options.

Kodak chairman and CEO Antonio Perez ranked second in total compensation, pulling in $12.6 million. Perez's 2009 pay package was some $4 million or 46.2 percent higher than the $8.6 million he received in 2008.

Former Xerox chairman and CEO Anne Mulcahy, who handed over the company's reins to Ursula Burns in May, was next most highly paid, pulling in total compensation of $11.2 million last year.

Several CEOs took double-digit hits in compensation last year. Biophan CEO John Lanzafame's compensation fell 67.5 percent, going from $623,919 to $202,500. Ultralife's John Kavazanjian saw a 13.6 percent cut from $737,078 to $637,193. Paetec Holding Corp. chairman and CEO Arunas Chesonis took the biggest percentage pay cut, a 55.4 percent drop from nearly $2.1 million in 2008 to $921,828 last year.

Gannett president and CEO Craig Dubow saw his compensation jump nearly 50 percent to $4.7 million. Paychex Inc. CEO Jonathan Judge's compensation rose 41.8 percent to $3.4 million.

Looking ahead
What lies ahead for the RBJ 75 is difficult to predict. The consensus among economists points to a slow and fitful recovery from the recession. At least some RBJ 75 CEOs appear to be more optimistic.

Burns painted a relatively upbeat picture of Xerox's prospects when she took over in May, highlighting its recent $6.4 billion acquisition of Affiliated Computer Services Inc. as heralding an upswing for the company. She projected top-line growth of 1 percent to 3 percent that would bring Xerox revenues to the $24 billion range.

Speaking to investors in February, Perez was similarly upbeat about Kodak's prospects.

"Our strategy is working and we are on track toward sustained profitability," he said. "We are successfully managing through one of the deepest global economic downturns in history, and we have emerged as a leaner, more competitive company."

Paetec's Chesonis has been modestly upbeat in forecasting the $1.4 billion telecommunications company's prospects, predicting steady growth and a return to profitability for Paetec, which managed to stay profitable during the telecom meltdown but began to post red ink after it made major acquisitions in 2006 and 2007. Paetec has held steady in plans to move from Perinton to a new downtown headquarters but has significantly downscaled plans for the building.

The non-profits that have been the area's primary engine of job growth also have been hit by the recession. The hospitals and health systems that account for much of the recent job growth are facing cuts in state and federally administered insurance programs.

While expressing confidence that UR's medical center could ride out the storm, Leonard Shute, chief financial officer of Strong Memorial and Highland hospitals, predicted rough going. But despite the growing financial pressures, he said, "I feel like we're in a good position to cope with what's on the horizon." 

7/23/10 (c) 2010 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or e-mail service@rbj.net.

 


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