Sunbeam’s Firing Plan Leaves Investors Cold

For years, Sunbeam Chairman “Chainsaw” Al Dunlap has been working from the same script: Move into a company, announce mass firings and watch the company’s stock soar.

That strategy worked for the 60-year-old Dunlap--until this week. On Monday, Sunbeam’s battered stock dropped $2.06, or 7.4%, to $25.75, near its lowest level in a year, after officials reported a first-quarter loss and plans to close eight plants and fire about 6,000 more workers.

More important, Dunlap, once a darling of corporate America for his aggressive cost-cutting, seems to be losing favor with Wall Street. Analysts meeting Monday with Dunlap openly expressed skepticism about his strategy to improve Sunbeam’s earnings.

Dunlap’s icy reception, financial and management experts say, shows that his Rambo-style management strategy may be wearing thin.

Dunlap must show that he has a solid plan to improve growth, experts say, and firing workers isn’t enough.

Daniel J.B. Mitchell, a UCLA professor who teaches management and public policy, said Dunlap is operating in a different era.

“With shortages in the labor market, it’s no longer in vogue to fire workers,” he said. “On average, employers are instead feeling understaffed and are looking to hire new workers.”

Dunlap’s latest firings are consistent with a slice-and-dice strategy that earned him his nickname.

In 1995, when he took over the leadership of Scott Paper Co., Dunlap served up pink slips to one-third of its 11,200 workers. Dunlap eventually took home $100 million in profit on his own Scott Paper stock when the company merged with Kimberly Clark several months later.

Dunlap, a man not known for his modesty, cashed in on his image as a Rambo in pinstripes. He became a high-priced motivational speaker and wrote a book titled “Mean Business: How I Save Bad Companies and Make Good Companies Great.”

Two years ago, when Dunlap was hired to revive Sunbeam, the company’s stock skyrocketed after he fired half of its 12,000 employees.

Since then, the company has become larger, acquiring three companies in March for about $2.5 billion--the manufacturers of Mr. Coffee coffee makers, Coleman camping equipment and First Alert smoke alarms.

Sunbeam now plans to close five U.S. plants and three more in Latin America. It will sell Coleman’s East Pak backpack unit and hot tub business, which do not fit with its plans. The appliance maker will have a work force of 9,500 after the latest round of firings.

This second round of drastic cuts doesn’t guarantee that Sunbeam will be a more efficient company, according to Eric Greenberg, who produces an annual survey of job elimination and job creation for the American Management Assn. in New York.

“Survey upon survey shows that the successful companies are the ones that are constantly tinkering with their work force, eliminating work that is no longer necessary,” Greenberg said. “But companies that cut jobs as a cost-cutting measure without any thought to the effects of these cuts are hitting themselves on the head with a sledgehammer.”

Recent numbers show Sunbeam lost $8 million from continuing operations for the latest quarter. Sales fell 4% to $244 million from $253.5 million.

Dunlap blamed sales shortfalls on a recent recall of some grills, tighter inventory practices by retailers and even the El Nino weather phenomenon, which produced storms that slowed sales on outdoor grills.

“I remain extremely optimistic about what we can do with this company going forward,” he told investors at the Monday meeting.

But John A. Challenger, executive vice president at Challenger & Grey in Chicago, which tracks staffing matters, said figures show that Dunlap “has not been able to grow the company.”

“The first time he cut jobs showed it was a plan to thin down an obese patient,” Challenger said. “This latest plan may signal his willingness to chop off arms and legs.”

Some investors agree.

Money manager Bart Wear of Winslow Capital, an investment company that has sold the 443,000 Sunbeam shares it held in March, said the perception that Dunlap can generate earnings by slashing costs “is no longer there. The bloom is off the rose,” he said.

Labor leaders also expressed relief that Wall Street did not reward Dunlap for his latest announcement.

“Wall Street may be waking up to the realization that cuts for short-term results weaken companies,” said Ron Blackwell, director of corporate affairs for the AFL-CIO in Washington.

“As they say in the South, every jackass can kick down a barn. . . . It takes real management talent to build a company.”

Times wire services were used in compiling this report.