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  • The Boston Globe OnlineBoston.com Boston Globe Online / Business / Globe 100
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    (Globe File Photo)
    An economic land of plenty

    Those firms that digested purchases thrive; others await their big payday

    By Gregg Krupa, Globe Staff, 05/18/99

    In photo: For Gillette Co. and president Robert King, '98 was marked by a key event in the corporate giant's history: the launching of its Mach3 razor system.

    ith the economy humming along, the normally well-to-do among corporations in Massachusetts did even better in 1998. And some of the seemingly less privileged are a bit more fit than it may seem.

    BIGGEST PROFITS
    Rank Company Name 1998 Income
    (millions)
    1 Fleet Financial Group Inc. $1,481.0
    2 Gillette Co. $1,081.0
    3 Raytheon Co. $864.0
    4 EMC Corp. $793.4
    5 BankBoston Corp. $783.0
    6 State Street Corp. $436.0
    7 TJX Companies Inc. $433.2
    8 Allmerica Financial Corp. $201.2
    9 New England Electric System $190.0
    10 Staples Inc. $185.4
    Source: Nordby International, Inc., Boulder, Co.
    The usual best-performing companies in Massachusetts cashed in with robust profits in 1998, while a few of the worst performers attribute their weak profits to investments in expansion and the amortized costs of recent acquisitions.

    For well-known companies with long-standing, good relations with consumers and with an ability to diversify product lines, a strong economy seemingly leads only to brisker sales and stronger profits. Even the Asia crisis could not keep the Gillette Co., bolstered by strong domestic sales, from posting the second-highest profits in the Globe 100, for example.

    Meanwhile, one of the hottest high-tech firms in the country, EMC Corp. of Hopkinton, became more profitable amid the beneficial economic landscape. Having surpassed IBM in the computer storage area long ago to become one of the most powerful players in the field, EMC posted profits that were up 47 percent to $793 million in 1998, making it the fourth most profitable firm in the Globe 100.

    And in banking, whether a giant such as Fleet Financial Group or a smaller institution such as Lawrence Savings Bank, good times make for a strong profits picture.

    ''It's a great time to be a bank,'' said Paul Miller, president of Lawrence Savings.

    ''It is a great economy,'' said Leo Breitman, chairman and chief economic officer of Fleet Bank, Massachusetts. Fleet topped the Globe 100 in profits performance, with close to $1.5 billion in net income. ''We're fortunate, too, that we have a very clean portfolio with no loan losses of which to speak. And a few of the acquisitions from '97 really kicked in last year, becoming major contributors.''

    Other familiar strong performers - including Raytheon Co., State Street Corp., and TJX Cos. - were among the top 10 in absolute profits last year, evidence that proven companies and a good economy make a perfect marriage.

    As perfect as any marriage can be, perhaps. There were a few bumps along the way. The world financial crisis bit into Gillette's net income, for example, reducing it by about 24 percent from 1997 to $1.08 billion.

    ''When you compare '97 and '98, you can say that we did well even though the overall economy was not necessarily with us,'' said Joan Gallagher, vice president for corporate public relations at Gillette. ''While we deliver the best products money can buy, you've got to have consumers in the market and retailers who put the product on their shelves.''

    Meanwhile, acquisitions helped spur significant profits at some companies.

    ''A big part of the story is the coming together of a strategy to prepare the company to compete in an industry that is consolidating,'' said David Polk, a spokesman for Raytheon. The acquisitions of the defense units of Texas Instruments Inc. and Hughes Electronics Corp. continue to drive strong profits at Raytheon, up almost 67 percent to $864 million in 1998.

    And the Army finished the year predicting that overseas sales of the Patriot missile will rise about 25 percent in the next five years, adding to the $4.6 billion in sales of Raytheon's best-known air defense system since 1994.

    TJX announced record sales and earnings in its fiscal year to no one's surprise. With retailers generally doing well, TJX's deft management of inventory and its decision to keep Marshalls a separate chain to nurture consumer identification helped boost profits almost 47 percent in 1998 to $433 million.

    While purchases helped propel profits at Raytheon and TJX, they helped hold them down at Wang Global, Boston Scientific Corp., and Lycos Inc.: All three made the Globe 100's ranking of biggest losses.

    Wang Global is doing better than it might seem. A $329.2 million loss, a huge decline from $100,000 in profit in 1997, sounds awful. But in the last five years the company has almost completely transformed from a manufacturer of minicomputers to a software services supplier.

    And much of the lost profit is because of Wang's March 1998 purchase of Olsy, the Milan-based computer services unit of Olivetti SpA. At a cost of $390 million, the acquisition doubled Wang's size and is expected to generate modest earnings for investors later this year, Wang executives say.

    Lycos is also near the bottom in absolute profits, but the young company's strategy, like many in the high-tech sector, is centered on the costly gobbling up of smaller start-ups, trusting that it will spur growth.

    ''Most of the companies in our space, which is known for its high rate of growth, are about the business of building loyalty and users,'' said Thomas Guilfoyle, vice president for administration. ''It is only recently that the companies have started to show profits, and we were one of the first companies in our space to be profitable, in the first and second quarters of 1998.''

    This demonstrated ability to generate profits has made Lycos a hot takeover target, with USA Networks taking a stab at buying the Internet firm this spring before investor pressure punctured the deal.

    Much of Boston Scientific's struggles last year - net income dropped $396 million to a loss of $264 million - were created by acquisitions as well. Larry Best, chief financial officer, attributed the drop to the company's acquisition of Schneider Worldwide, a division of Pfizer Inc., for $2.1 billion. ''That completely distorted the earnings,'' Best said.

    The company had other problems, however, including a heart device that had to be recalled six weeks after its introduction and financial misstatements from its office in Japan.

    Among the bottom 10 in absolute profits, Arch Communications Group Inc. helped prove that a strong economy is little remedy for underperforming product lines. The third-largest seller of pagers in the country, Arch is trying to weather declining prices and increased competition from wireless phone services.

    Harcourt General led the way for companies that were born again in 1998, turning around a $144 million loss in 1997 to a net income of $136.6 million in 1998. Again, an acquisition played a key role in both profit tallies. The education publisher's purchase of National Education Corp. in 1997 ate away at profits, but helped Harcourt toward 1998's strong showing.

    ''The companies are completely compatible,'' said Peter Farwell, vice president of corporate relations at Harcourt. ''It's working out. We're pleased we did it.''

    This story ran on page D45 of the Boston Globe on 05/18/99.
    © Copyright 1999 Globe Newspaper Company.

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