Teledyne Likely to Try Winning Formula Again
Teledyne Inc., the Los Angeles-based conglomerate, has long held a fascination for Wall Street, which once again these days is trying to figure out what its enigmatic Chairman Henry E. Singleton will do next.
Well, perhaps he gave a subtle clue at Teledyne’s recent annual meeting, at which the company showed a film of Voyager’s flight around the world, powered on a single tank of gas by an engine that got 500 miles to the gallon at 100 miles per hour.
That engine--as much an achievement of engineering and manufacturing know-how as the Voyager flight was a triumph of determination--was developed during the past six years at Teledyne’s Continental Motors subsidiary in Mobile, Ala., and now would begin paying off. A larger commercial model will be introduced in aviation markets, Teledyne President George A. Roberts told the assembled shareholders.
But Roberts, a veteran manufacturing man, also told stockholders the cost. Earnings in the first quarter were held back by continued expenditures on research and development and on putting Teledyne’s plants in competitive shape.
Confident Shareholders
R&D;, along with some contract cost overruns, was the story last year, too, as Teledyne’s net income fell to less than half that of 1985, and earnings per share came in at $20.35, just below the per-share figure of five years before. Sales, at $3.2 billion, haven’t increased in five years.
Yet, the shareholders didn’t seem concerned. “I just hold the stock, and it goes up some more,” a shareholder told Teledyne director Fayez Sarofim--one of the nation’s smartest investment managers--after the meeting. Sarofim, whose firm owns 8.7% of Teledyne’s stock, smiled and agreed.
What kind of company is this that earns no shareholder wrath when profits don’t grow? It is a company that, despite 128 separate operating divisions, remains largely based on faith that Singleton will make a winning move. He’s been right so often that even skeptical Wall Street is more believer than not. Teledyne stock has more than doubled in five years, although it currently sells 13% below its 1986 high, at around $320 a share.
Singleton, who holds a doctorate in engineering from the Massachusetts Institute of Technology, founded Teledyne in 1960 on the basis of an aviation device that he invented and built it by acquiring other companies. But starting in 1972, he reversed his field with a series of stock buybacks that baffled Wall Street but delighted selling shareholders.
Gambit That Worked
Paying a premium over market, and buying as many shares as holders offered, he reduced Teledyne’s outstanding shares from 32 million to today’s 11.7 million. In 1984, Singleton offered $200 a share for stock then selling for $155 and bought in 8.6 million shares. When the buyback was complete, the stock rose. “He had bought out all the sellers,” explains analyst Robert Hanisee of Seidler Amdec Securities.
Some companies acquire others to grow bigger. But Singleton, in moves more typical of a family company, bought out some owners to enlarge the equity stake of the remaining owners. By shrinking the base, he made the value of each share greater--including his own. He now owns 1.5 million Teledyne shares, 13% of the company, worth close to $500 million.
Such moves long ago earned Singleton a reputation for financial acumen, but his company--with products ranging from semiconductors to stereo speakers--has been less remarked upon for manufacturing abilities. Now, when a nervous America is thinking once again about such skills, Teledyne’s turn out to be excellent--as witness the Voyager engine.
Which may afford a clue as to what Singleton, who is 70 and has ceded the chief executive’s post to his longtime associate Roberts--who is 68--will do next.
There is speculation that he will spin off Teledyne’s divisions to gain a separate stock market value for each, currently a hot idea among investment bankers.
They note that Teledyne last year distributed shares in its Argonaut insurance subsidiary to shareholders and the value of those shares has risen from around $17 a share to $34.
But Singleton says no. He told the annual meeting: “We don’t have any plans at all for a spinoff at this time” and later criticized the spinoff idea. “To sell something to lift the price of the stock is not thinking correctly,” he said. “We build for the long term.”
So what lies ahead? Recall those expenditures on R&D; and on plant modernization. Those could be about to pay off in a period of newly rising earnings for Teledyne, which currently sells at 15 times earnings when the market’s average stock goes at 19.
Singleton has always bought when he believed the price was low, and analyst Carol Neves of Merrill Lynch suggests that is what he will do again--that as cash builds up in Teledyne, he will buy in more stock.
It’s always worked for him before.
