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Tuesday, April 09, 2002

By Teresa F. Lindeman, Post-Gazette Staff Writer

You know it's a bumpy year when the top performing companies include those that have sent out pink slips, warned analysts that earnings might miss estimates and spent many a conference call discussing management's cost-cutting expertise.

	The winners OVERALL: 1. Alcoa Inc. 2. Mellon Financial Corp. 3. Black Box Corp. 4. H.J. Heinz Co. 5. II-VI Inc. GROWTH: 1. II-VI Inc. 2. Black Box Corp. 3.Ansoft Corp. 4. Ansys Inc. 5. American Eagle Outfitters Inc. Online chart: Top winners: Growth Online chart: Top winners: Overall

"In ... 2001, growth was a scarce commodity," observed Stuart Hoffman, chief economist for Pittsburgh-based PNC Financial Services Group.

Many found it by buying out the competition -- in other words, taking advantage of the slump to get a good price and new market share. Another popular tactic was improving profit margins by finding ways to do the job better and cheaper.

To avoid an unbecoming fist fight at the medals ceremony, the Pittsburgh Post-Gazette ran two sets of numbers in our search for the region's best-performing public companies.

One assessed the big picture by looking at all the vital statistics -- revenue, revenue growth, net income, stock price growth, return on equity and market capitalization, the last being a key measure of how much the public companies were worth Dec. 31 based on their stock price times shares outstanding.

The big picture sometimes favored the big players -- Mellon Financial Corp.'s $3.65 billion in revenue easily towered over Ansys Inc.'s $85 million, for example, helping the financial giant to top the Canonsburg-based engineering software concern when all performance measures were considered equally.

Still, size alone wasn't enough to bump the smaller guys off the big picture list. With its $123 million in revenue, II-VI Inc., the Saxonburg-based maker of fiber optics equipment, nosed out PPG Industries Inc. and its $8.2 billion in revenue for the overall fifth spot.

The Post-Gazette's second ranking, which judged local companies on three key growth factors -- revenue growth, stock price growth and return on equity -- gave smaller companies a better chance to shine.

II-VI, for example, claimed the top spot in this ranking, while Alcoa, the No. 1 company in the overall ranking, fell to 33rd. Indeed, a glance at the top-five finishers in the growth ranking emphasizes youth and speed.

Here's a closer look at the top performers in both categories:

1. Overall -- Alcoa Inc.

"We work hard at controlling what we can control," said Richard B. Kelson, Alcoa's chief financial officer. Faced with an across-the-board decline in demand from its recession-battered global customers, the world's largest aluminum company aimed to be smooth and fast on its feet.

After already cutting $1.1 billion in annual costs between 1998 and 2000, Alcoa set a goal of cutting another $1 billion by 2003. Operating efficiently also meant slashing the worldwide work force by about 10,000 and permanently closing numerous locations.

And tighter inventory controls are making it easier to adapt quickly when orders fall, Kelson said. If there's no demand, Alcoa wants to avoid getting stuck with excess.

	Audio: Behind the Top 50 Click to download these MP3 samples: Business Editor Douglas Heuck talks about some of the considerations weighed in selecting the firms spotlighted in the department's special report.(File size: 952 KB) Heuck describes the factors that makes a company's stock price perform well in a down economy. (516 KB) Heuck talks about the selection of the regional business with the fastest growing revenue. (1.1MB) Visit the following sites to download players for Windows or Mac machines to listen to the file: Real Player Microsoft Windows Media Player WinAMP

"Our actions blunted the impact of greatly reduced market activity but could not eliminate it," Chairman Alain J.P. Belda wrote in Alcoa's 2001 annual report.

Revenue was basically flat. Analysts said it could have been worse. "Even though they were in a recession and returns went down, they were still pretty good," said BB&T Capital Markets analyst Lewis O'Carroll.

Alcoa owes its No. 1 ranking in part to investors who've kept its stock market value above $30 billion, almost double the market capitalization of No. 2 Mellon.

Carroll thinks investors recognize Alcoa's management strength.

"In terms of manufacturing companies, you've got to go to General Electric to get better."

1. Growth -- II-VI Inc.

"Who is II-VI?" asked one businessperson after being informed the Butler County laser optics company had not only topped the growth list, but also had made the top five in the overall rankings.

Saxonburg-based II-VI has been around since 1971, but a strategic acquisition in the fiscal year ended June 30, 2001, caught many people's attention. The purchase of San Diego competitor Laser Power Corp. diversified the II-VI customer base and boosted its revenues by 66 percent.

Before the purchase, only 10 percent of the company's sales were to military users. Afterward, that became 25 percent, said II-VI Treasurer Craig Creaturo.

Creaturo pointed out the rankings also may have been boosted by the fact that the company's fiscal year 2001 ended in June. "Our business does tend to trail the general economy by one to two quarters," he said. In other words, the impact of the recession didn't really hit until late 2001, which won't show up until this fiscal year ends in June.

In recent months, II-VI has seen business slow and has cut about 15 percent of its worldwide work force.

Legg Mason research director Bob Kanters said investors who pushed the stock up 13 percent last year may see the potential. II-VI has steadily become a leading player in the industrial laser market and appears positioned to move up in the military and medical markets.

"Basically, I think people are looking ahead," Kanters said.

Other top performers:

Mellon Financial Corp.

(No. 2 Overall)

"They've made a big bet," said Legg Mason's Kanters.

Kanters, of course, was referring to Mellon's decision last year to finally stop messing around with the small-fry bank customers and turn its full attention to managing the deeper pockets of institutions and wealthy folks.

The timing of its deal to shed its retail banking operations was such that the financial services firm's 2001 numbers took full advantage of the sale of its 345 branches to Rhode Island-based Citizens Financial Group, the U.S. unit of the Royal Bank of Scotland.

For the fourth quarter, net income including the sale proceeds soared to $807 million from $255 million in the year-ago quarter. That helped Mellon's total net income for year hit $1.3 billion, exceeding the mere $908 million posted by its much larger neighbor, Alcoa.

The markets have been a bit nervous about the prospects of earning more money management fee income in a bearish investment climate, but Kanters said investors were still willing to pay a bit of a premium for Mellon's shares. "I think the Street is saying, 'OK' to that right now."

	Elgin E. Eissler, director of science and technology for II-VI Inc., holds a research crystal made by the maker of fiber optics equipment. (Bill Wade, Post-Gazette)

Black Box Corp.

(No. 3 Overall and No. 2 Growth)

This network services provider's high rankings reflect the strength of its last fiscal year, which ended way back in March 2001. Revenue, which included acquisitions, rose 63 percent from $580 million to $827 million.

Just a few months later, turbulence in the market forced the Washington County company to eliminate jobs locally and worldwide. But investors have responded well to the steps taken by Black Box management to stabilize revenue and pushed the stock price up 10 percent at year-end.

Results for fiscal 2002 have not yet been released.

H.J. Heinz Co.

(No. 4 Overall)

Growth is the ongoing challenge for the mature H.J. Heinz Co. these days, as well, but this Pittsburgh-based maker of food staples may have offered shelter last year to investors looking for stability after dot.coms spun out of control. "Heinz is looked at as kind of a safe defensive issue," said Kanters.

Heinz trailed only Consol Energy Inc. in return on equity, a key number used to calculate the amount earned on a company's common stock investment. The number basically shows shareholders how effectively their money is being used.

While green and purple ketchup snag the headlines, Heinz has been closing plants and streamlining inventory to avoid wasting resources on slow-moving products.

One footnote: Heinz's fiscal year ended in April, meaning the impact of the September attacks on its food service business weren't reflected in the calculations.

Elgin E. Eissler, director of science and technology at II-VI, Herman E. Reedy, general manager of quality and engineering, and Csaba Szeles, crystal growth operations manager for eV Products, a II-VI division, in a room where experimental crystals are produced. (Bill Wade, Post-Gazette)

Ansoft Corp.

(No. 3 Growth)

Ansoft Corp.'s stock price shot up 116 percent last year. "It was the year of the small value stock," said Kim Caughey, an analyst at Downtown investment firm Parker/Hunter Inc.

Another of the tech companies overshadowed by the Internet rush, the South Side concern makes computer-aided design software that helps other people design and test new products in the virtual world. Its customers include Motorola, Intel and Dupont.

A key acquisition actually gave Ansoft more than 85 percent of the world market for its high frequency product line. "They really did corner the market," said Caughey.

Revenue for the most recent fiscal year, which ended April 30, rose 30 percent.

Ansys Inc.

(No. 4 Growth)

Ansys really came into its own last year, and it didn't even do anything that dramatic, said Parker/Hunter's Caughey. "What was so remarkable is they were such a steady growth company."

The developer of software used in designing new products had been plodding along for several years posting reliable increases. "That just wasn't exciting enough for investors."

But suddenly, the studious, small-town business looked compelling, with real profits not just pie-in-the-Web potential. Revenue rose 30 percent, and the stock price shot up a satisfying 119 percent over the course of the year.

American Eagle Outfitters Inc.

(No. 5 Growth)

This clothier to the collegiate crowd posted bigger sales numbers all year. Revenue ended up 25 percent higher than the year before.

It must be said some of the increase came from a chain of Canadian stores that American Eagle Outfitters picked up a year ago. But the Marshall retailer also gave its shareholders a hefty 24.63 percent return on equity.

American Eagle's sales in stores open at least a year grew 2.3 percent, during a rocky period that saw mall peers such as Abercrombie & Fitch and Gap reporting decreases.