Publication Date:
Sun, 1899-12-31 18:00
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Even as deregulation is creating new markets, it is requiring traditionally regulated utilities -- natural gas and electricity -- to narrow their vision, focusing on the core strengths and values that made them successful in the first place. That means improving customer service, applying new technologies to make traditional services more efficient and finding new services that capitalize on the existing infrastructure and customer base.
This is a lesson I learned firsthand. When I arrived at Equitable Resources, I inherited a diverse and somewhat scattered natural gas company. Equitable had production facilities in Appalachia and the Gulf of Mexico, a utility business with more than 260,000 customers and an energy services business.
Today, we have repositioned Equitable Resources as a tightly focused, regional natural gas company. We're well-positioned to deliver double-digit growth in revenue and earnings per share for the next several years.
How did our management team accomplish this? By focusing on the fundamentals in each operation. Here are five principles we followed:
1. Establish a strong management team. A company needs strong, well-connected leaders to execute a successful turnaround.
2. Focus on core business operations. Every successful turnaround starts with a renewed focus on core competencies. Each business function should support these competencies. At Equitable, our core capability is gathering, distributing and extracting natural gas.
3. Improve internal cost structures. Many natural gas companies are Old Economy models with outdated infrastructure and internal procedures. With the proliferation of technology, any turnaround plan should include a reinvention of internal procedures and policies with a focus on achieving superior growth. At Equitable, we established a short-term goal to improve our return on capital to 10% in all business units. We expect to achieve this goal in most of our business units and are evaluating ways to leverage technology to continue to improve.
4. Set realistic, reachable goals. The most important tool in a turnaround is the process of creating and measuring progress against realistic short- and long-term goals. Measurable goals allow management to show progress toward the eventual objective: turnaround.
At Equitable, we initially used three metrics to measure our success: 10% year-on-year top-line growth, 15% increase in earnings and 10% return on total capital. Based on our progress, we have increased some of these goals. We continue to target 10% return on total capital for all our businesses, but we have raised our top-line growth goal to 15% and our bottom-line earnings growth goal to 20% to 30%.
5. Grow core businesses. Once a company re-establishes credibility in its core businesses, it is essential to grow them. One option is through mergers and acquisitions. At Equitable, we've executed three transactions to reposition our competencies. In December 1999, we acquired Carnegie Natural Gas, providing a geographic fit to our current distribution network. In February 2000, we bought Statoil Energy's Appalachian production operation, making Equitable Resources the largest natural gas gathering and extraction company in the Appalachian region. Our third transaction repositioned our noncore exploration and production (E&P) business in the Gulf of Mexico with Westport Oil and Gas Co. to create one of the largest E&P companies in the United States.
The early results of this plan have been encouraging. During the past year, Equitable delivered a 45% total return to its shareholders. Full-year earnings per share rose 196% in 1999 vs. 1998, and first-quarter 2000 earnings rose 40% over the prior period.
So what follows a turnaround? More turnaround. A turnaround mind-set should be constant. Increased competition demands that we reinvent ourselves every day -- to become more efficient, improve customer service and provide new products our customers want and demand. It's essential to have a blueprint and to execute against this plan. At Equitable, our improved financial performance and returns signal the early success of this strategy.
Murry S. Gerber is chairman, president and CEO of Equitable Resources in Pittsburgh. He can be reached at mgerber@eqt.com [1].
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