Joseph Galli Jr.'s reputation as an inspirational manager will be put to the test as he sets out to remake struggling Newell Rubbermaid Inc.
The 42-year-old newly named chief executive officer must shift the housewares company's focus from cost-cutting to brand-building, from currying favor with retailers to catering to consumers, all while galvanizing the demoralized spirits of Freeport, Ill.-based Newell's 44,000 employees.
Most importantly, he'll need to rebuild the company's reputation with shareholders, who have endured a series of earnings disappointments in the aftermath of Newell's $6 billion acquisition of Rubbermaid Inc. in 1999. Newell Rubbermaid shares traded recently for about $26, up from a 52-week low of $18.25 but down from an all-time high of $54.44 in 1998.
"This company, in investors' minds, is in the negative-credibility column," said Amanda Tepper, an analyst at J.P. Morgan Chase & Co. in New York. "It's going to take some time" to change that.
With stints in senior management at both old- and new-economy companies, Galli will have to learn quickly how to manage the expectations of Wall Street as a CEO.
He'll have to master a diverse and unwieldy product portfolio, ranging from cookware to window blinds and picture frames to paintbrushes. He'll be charged with evaluating that mix, deciding where to spend money for marketing and product development, and which businesses to sell off.
But analysts say Galli's ability to motivate his subordinates is just what Newell needs. A former co-captain of the wrestling team at the University of North Carolina at Chapel Hill, Galli is known as a fierce competitor and team-builder.
"Morale must be pretty bad in that company right now, and he is a big morale-boosting manager," said Linda Bolton-Weiser, an analyst at Fahnestock & Co. in New York.
Galli declined through a spokeswoman to be interviewed. He was named to the post Jan. 8, replacing interim CEO William P. Sovey, who will remain as Newell's chairman. Sovey took over in November from John J. McDonough, who quit under board pressure.
Even before Galli's appointment, analysts clamored for a CEO who would transform Newell into a more marketing-driven company, a process that began under McDonough.
Newell, with 1999 sales of $6.4 billion, has a long-standing reputation for operational discipline and keeping retailers happy by emphasizing customer service and on-time deliveries. And it has been a master at squeezing cost savings from acquired companies through a process known as "Newellization."
But marketing and product development long have been weak spots. While some of the company's products sell under well-known brand names like Rubbermaid, many are commodities that compete primarily on price.
"Their idea of innovation is to change the product from forest green to magenta," Bolton-Weiser said.
Analysts and investors say Galli has the marketing prowess to change that. They point to his success at Towson, Md.-based Black & Decker Corp., where he resurrected the neglected DeWalt line of professional power tools, which had almost no sales in the early 1990s, and built it into a $1.4 billion business over seven years.
"DeWalt is one of the great brand portfolio management stories of all time," said Sam Hill, president of Helios Consulting Group, a New York-based marketing firm.
Yet Galli can point to fewer tangible accomplishments at two new-economy companies. He left Black & Decker in April 1999 to take over as president and chief operating officer at Amazon.com Inc., only to resign 13 months later to become CEO of VerticalNet Inc., a business-to-business exchange.
While Galli said he plans to stay at Newell for a long time — possibly until retirement — his recent job-hopping concerns some investors, who fear he may jump ship if he gets a better offer.
"It's a red flag," said Todd Griesbach, a research analyst at Ariel Capital Management Inc., a Chicago-based money manager that owns about 800,000 Newell shares.
With Galli focusing on growing internal sales, analysts expect Newell to dial back on acquisitions. The company historically has aimed for about 12-15 percent earnings-per-share growth, with acquisitions accounting for about two-thirds of the gains. Analysts would like internal sales to account for about half of Newell's earnings growth.
Divestitures and luck
Galli's first job will be making sure that the company's latest acquisition — Gillette Co.'s $743 million stationery business, which includes Parker and Waterman pens — is integrated more smoothly than Rubbermaid.
Analysts and investors also want Galli to take a close look at shedding some of Newell's slower-growing or less-profitable businesses. Two potential divestiture candidates: the Goody line of hair-care accessories and the cookware business.
Galli also could use a little luck, starting with relief from the high price of plastic resin, which hurt the company's profit last year. Every penny increase in the price of resin cuts Newell's earnings by 2 cents a share, according to Tepper, the J.P. Morgan analyst.
Few analysts, meanwhile, expect Galli's brand-building strategy to boost the company's financial results this year. Tepper expects the company to earn $1.77 a share, up just 4 percent from $1.70 last year.
"This is a battleship," she said. "It takes a long time to turn around."