ITT has a plan for sustainability in the financial crisis.
Question: How can companies survive the financial crisis?
Steve Loranger: It is uncertain. But what is not uncertain is we’ll get through this. I can’t predict when. But nonetheless, we do know that the underlying demographics in the global needs for a strong global economy is still there. We’re going to add 3 and a half billion people to the earth in the next 50 years. We’re transitioning. And that is a challenge I understand. And we are transitioning a 150, 200 million people per year from what would be called, the classification of lower class or poverty to middle class, and that drives consumption. So we’ll get through these economic times, hopefully, with more discipline and focus than what we had in the past. So how do we think about this at ITT? It’s really a two prong approach. One, you got to keep the ship afloat. And that means, focusing on your customers, focusing on cost, your costs breakeven in focusing on your cash and liquidity, keeping your employees engaged and inspired, and making sure that your long-term strategies are on track. That’s our formula for the short-term. So we are working very, very hard to make sure that we do maintain our liquidity and we maintain our cost position. I’ll come back to that.
But then, with respect to the future, we have to be undaunted by this economic scenario and be a little, be consistent in terms of our view. So even though we are doing a lot of discretionary cost reductions, we’re taking some tough prioritizations, we’re not compromising our long-term future. This is not a time to burn the quarter, excuse me, to burn the furniture to make the quarter. This isn’t the time for that.
Now, our economic model is in pretty good shape because of the nature of the business and the way we run it, as I mentioned. But nonetheless, we do have to respond. But the real key to the future is to be able to make sure that we’re taking this time to seize on the advantage, whether it’s evaluation for an acquisition, whether it is to move into market share, where a competitor has decided to retrench, or whether it’s to generate a new level of loyalty with the customer because they need us in times when it’s tough for them and they’ll remember it when times are good. And so, these strategies of us, maintaining our focus on the long-term are very, very important to us.
And let me just cycle back for a minute to the centerpiece of your question, which was cost and cash. Clearly, 30-30 rule applies. We’ve been very ambitious on reducing our cost, not just peanut butter spread but reducing our cost in areas where we can prioritize and make effective decisions. We’re driving restructuring. We’re consolidating facilities. We are moving lines to lower cost regions. And in some cases, we are streamlining organizations and we do have some head count reductions. So making sure we stay ahead of the game on cost is very, very important. We also want to maintain a real discipline on cash flow. So we’re looking at receivables every day. When we have a receivable that looks out of line, we’re making, we’re taking quick action. We want to make sure that our cash flow conversion maintains a really, really good conversion ratio to net income right now. We also have been reducing our capital expenses. And we have other strategies where we have not deployed them, but we know what we would do if you saw further credit markets lock up. And so, as an example, what we’re trying to do is say, with respect to cost and cash and, of course, on the revenue side, making sure that the business stays right-side-up. There’re a lot of companies out there that are in deep financial trouble and in strategic trouble. We’re not one of them but we’re not planning on being one of them. And so, having that focus each and every day is really, really critical in this economy.
Question: Which companies are weathering the economic storm well?
Steve Loranger: Well, I think a lot of them are. I think, reflecting on even what I’m saying is not unusual. I know United Technologies. I happen to be a board member on the FedEx Corporation. And I know at FedEx, the FedEx team is doing very much the same thing. You know, looking at capacity, looking at cost, you know, being conservative on capital spending, and so forth. So every company has a little different lever that they’re pulling but I would say that we do find that the high quality, multi-industry companies that I watch, a lot of them are doing the same thing.
Recorded on: May 13, 2009