Gingo's second act at A. Schulman came with challenges

FAIRLAWN, OHIO — Joseph Gingo could have taken the easy road.

By late 2007, Gingo had worked for the Goodyear Tire & Rubber Co. for more than 40 years as an executive in a variety of roles. Retirement must have been approaching on the horizon. He surely could have accepted the gold watch and lived at a more relaxed pace.

Instead, Gingo accepted the top job at materials firm A. Schulman Inc. in Fairlawn, Ohio. Almost seven years later, Gingo has announced his retirement — and he's leaving Schulman in much better shape than it was when he came aboard on Jan. 1, 2008.

Gingo, 69, will retire from his roles as president and CEO on Dec. 31, but will continue as the firm's chairman. Longtime Schulman executive Bernard Rzepka will begin as president and CEO on Jan. 1.

Things were far from smooth when Gingo took the reins. Schulman's European operations had been outpacing its U.S. ones for so long that, by fiscal 2007, Europe was accounting for 72 percent of Schulman's total sales and all of the firm's profit. New York investment firms Barington Capital Group LP and Ramius Capital Group LLC also had been hammering Schulman for underperformance, leading to the departure of longtime CEO Terry Haines.

“I said I was interested in the company, but I didn't want to fight [with investors] every day,” Gingo recalled in a recent interview in Fairlawn, just a few days before his retirement was announced.

Gingo thought he knew the company pretty well, because he had served on Schulman's board of directors since 2000.

“[Barington CEO] Jim Mitaratonda already was a board member, and he contacted me and said he wanted me to run the company because I asked the right questions at the board meetings. Ramius said no [to me being CEO] because since I already was on the board, they thought I can't be any good. But [Ramius] agreed to it after they got two seats on the board.”

Soon after getting the top job, Gingo's education began.

“Just because you're on the board, don't think you know the company,” he said. “When you get into the details, you find out that the company is presenting what it wants to present. You only see a version of it while you're on the board.”

Losing money

The biggest change he found was that the firm's U.S. operations were losing $30 million per year. North America had been reporting a $15 million annual loss, but that number was lessened by a $15 million annual profit in Mexico.

Gingo also found different answers to questions he had asked as a board member.

“I asked why we were so big in auto in North America, when it's such a competitive field,” he said. “When I was on the board, they told me that tire companies like Goodyear don't have the strength to fight the Big 3 in Detroit. They said Schulman was in the ranks of bigger companies like Dow and ExxonMobil and DuPont. But when I got here, I found that everyone was treated the same.”

Additionally, Gingo decided to have Schulman cease an attempt to enter the automotive sheet market through a product called Invision.

“Invision was a good product, but it would have required a lot of changes in Detroit, so we got out,” he said.

The bigger question Gingo asked — and one that would shape Schulman's strategy going forward — was why the firm was big in the packaging market, and in color and additive masterbatch concentrates, in Europe and Mexico, but not so in the United States.

“I was told that packaging here was very competitive, but our competitors — people like Ampacet and Clariant — had facilities in all of those regions,” he said.

On all of these topics, Gingo said he didn't think previous Schulman management was being deceptive — just that they were looking at the market in different ways.

Gingo had to decide what assets to keep­. An automotive-focused plant in St. Thomas, Ontario, was closed because it was competing with polypropylene suppliers who could make compounds and pass through costs, something that Schulman couldn't do. A tolling plant in Orange, Texas, also was sold because of its commodity focus.

“We had to go where the big guys don't want to go,” he said. “They don't want small runs of complex products, they want to run volume. A commodity plant manager doesn't want anything complicated.”

Gingo also set in place a long-term plan of changing Schulman's money-losing U.S. operations to make them resemble the firm's money-making businesses in Europe and Mexico, which were focused on packaging and concentrates.

Acquisition hunting

Gingo took Schulman out on the acquisition trail, a market in which the firm had rarely participated. Schulman's first big acquisition was its December 2009 purchase of ICO Polymers — a publicly held compounder based in Houston — for $191 million.

“With ICO, we began to look at targets and became an acquirer,” Gingo recalled. “Both [Schulman and ICO] had strong positions in rotomolding in the U.S., and ICO had a similar position everywhere else in the world, so we could be number one in rotomolding compounds in one move.”

Schulman's acquisitions run eventually would total nine acquisitions in less than seven years. The company also has formed three joint ventures in that period.

Acquiring Akron, Ohio-based Network Polymers Inc. in May 2013 gave Schulman compounds based on styrenics and polycarbonate, he said. Color concentrates were the “deciding factor” in Schulman's January 2012 buy of French firm Elian SAS.

British compounder and resin distributor Perrite Group — acquired in September 2013 — had value in giving Schulman a plant in Malaysia, Gingo added. With Worcester, Mass.-based compounder and concentrate maker ECM Plastics Inc. — purchased in August 2012 — Schulman wanted color production in the United States. Schulman stuck to its long-term growth strategy even as its European businesses struggled.

As the recession moved on through 2008, Schulman still had a good balance sheet — including $200 million in cash — and had closed 40 percent of its U.S. capacity, mostly for commodity products.

The recession also had the unintended effect of reducing the impact of investors Barington and Ramius at Schulman. Those firms — which at one point owned about 30 percent of Schulman's common stock — had to sell most of those shares to meet cash calls when the economy worsened. Their lessened role made it easier for Schulman officials to operate.

The first few acquisitions made by Schulman went fairly smoothly. But the firm's dealings with Ferro Corp. — one of its neighbors in Northeast Ohio — would prove more problematic.

Schulman first approached Mayfield Heights, Ohio-based Ferro with an offer to buy the entire publicly held company — including specialty chemicals and a smaller plastics business — for $855 million in March 2013. That offer was deemed too low by Ferro management, leading to brief war of words between the two firms. Schulman declined to increase its bid and ended up walking away in July 2013.

But Schulman came back after being contacted by Ferro management, and eventually struck a deal to acquire Ferro's plastics business, including four materials production plants, for $91 million.

“We originally were ready to make a bid for just their plastics business, but we looked at the rest of the company, and thought there were a lot of opportunities for cost savings,” Gingo said. “The letter we got back just said they weren't selling. We weren't hostile. We didn't try to get any board seats or anything like that.

“But it ended up good — we got what we wanted.”

And it doesn't sound like Schulman will be getting out of the acquisition game any time soon.

“We're still interested in bolt-ons in masterbatch [concentrates] and in niche engineering plastics,” Gingo said. “But we're also looking for something transformational, something that would be $250 million or more.”

And in what Gingo called “a slower-growth world,” Schulman will have to rely more on new products and new markets — as well as acquisitions — to reach its stated goal of adding $100 million in sales annually for the next five years.

Schulman also will continue to grow elsewhere around the world in order to reduce its reliance on Europe. Europe now accounts for 65 percent of sales, but Gingo said the firm would like to have that number down to 55 percent by 2018.

Through generations

In 2009, Schulman embarked on a project that was special to Gingo when the firm converted a warehouse in nearby Akron — that had been the firm's first plant — back into a production site. That move had meaning for Gingo, because his father — Joseph Gingo Sr. — had worked at that plant for many years, eventually becoming plant manager.

A photo of Gingo Sr. now hangs in the entrance lobby of that plant. Gingo Jr. has memories of going to the plant with his mom to bring his dad's lunch when his dad was working the late shift.

Gingo's father was an Italian immigrant who was hired for his first job in America by Alex Schulman, who founded the firm as a rubber brokerage in 1928. Gingo Sr. worked on the company floor when Schulman was still involved in the scrap rubber business.

Another Gingo-led decision that will affect Schulman's future was opting to build a new headquarters in Fairlawn, just a couple miles away from the firm's longtime home. The 34,000-square-foot building — which opened earlier this year — is a bit smaller than the previous one, but has more usable space.

Looking back on his tenure at Schulman — which now employs 3,500 at 38 locations worldwide — Gingo said he's proud of what his management team has accomplished.

“I gave them direction, but they executed,” he said. “I love this company and I'm proud of what we've done.”

Early on, Gingo established Schulman's strategy around four behaviors: be open, be honest, listen and be accountable.

“These are our guiding principles, and I think one of the big reasons for our turnaround is the culture that we've created around these guiding principles,” he said. “An employee at a plant can say there's a problem with a line, and the boss will be right there with him.

“It's been fantastic. My only regret is that my dad wasn't around to see it. Some of my aunts and sisters saw it, and that was a very special thing for me.”

Gingo's family connection also gave him a trump card to play when employees would talk about how much experience they had with Schulman. That's because, as a kid, Joe Gingo had met Alex Schulman.

“The company used to have family picnics at Summit Lake in Akron, and Mr. Schulman would come around and give candy to all the kids,” Gingo recalled. “That was very inspirational to me.”

Industry consultant Rob Henske also was singled out by Gingo for helping Schulman with its turnaround. Henske has done strategic consulting work for Schulman for many years, first with Charles River Associates and now with Boston-based Roland Berger.

Praise from outside

Others outside of Schulman have taken note of the firm's achievement under Gingo. Stephen Newlin engineered a similar transformation at materials firm PolyOne Corp. — which competes with Schulman in some markets — before retiring as the firm's president and CEO earlier this year. Newlin's career at Avon Lake, Ohio-based PolyOne began in 2006 and overlapped much of Gingo's time at Schulman.

“In his tenure, Joe clearly established a new vision for A. Schulman and he is a true professional and a strong ambassador for the plastics industry,” Newlin said in a recent e-mail.  “I wish him all the best as he transitions to his new role.”

Plastics financial pro Bill Ridenour — president of the Polymer Transaction Advisors Inc. consulting firm in Newbury, Ohio — had a closer look at Schulman's transformation, representing the company in several of its recent acquisitions, and even representing ECM when it was acquired by Schulman.

“I found Schulman to be a very ethical and professional organization, and very receptive to suggestions and recommendations,” Ridenour said.

“I expect Schulman to continue its acquisition program and develop products in house as well,” Ridenour said. “Bernard Rzepka is an ideal replacement for Mr. Gingo because of his longtime successful experience in Europe and his recent exposure to the North American operations.”

Rzepka, 54, has been with Schulman for 22 years and currently serves as executive vice president and chief operating officer.

Kevin Hocevar — who covers Schulman as an analyst with the North Coast Research consulting firm in Cleveland — added that Gingo “has been instrumental in transforming Schulman into the company it is today.”

According to Hocevar, Gingo has left Schulman “in great shape” with leaner operations, an increasing mix of higher margin specialty products, a profitable Americas segment, a growth playbook driving top and bottom line growth and  a strong leadership team that will continue to grow the business.

“Given the shape that Schulman was in when Gingo took over, his accomplishments are quite remarkable,” Hocevar said.

Schulman's annual sales bottomed out at $1.6 billion during its 2010 fiscal year, but have rebounded to $2.1 billion for fiscal 2013. The firm's earnings per share also have soared from 87 cents in fiscal 2007 to an expected $2.28 for fiscal 2014.