Owens & Minor names interim chief as company battles challenges
Facing a tough competitive environment that has hurt its earnings and stock price, Owens & Minor Inc. has parted ways with its president and CEO and named an interim executive who has more than two decades of experience running a foodservice distribution business.
The Hanover Countybased medical products distributor named Robert C. Sledd as its interim president and CEO, the company announced Thursday. Sledd, a board member since 2007, also was elected as the company’s board chairman.
Sledd, 65, is the former chairman
and CEO of Goochland County-based Performance Food Group, the nation’s third-largest foodservice distributor, which he co-founded in 1987.
Sledd, who left Performance Food a decade ago when the business was sold to a private equity firm, said in an interview Thursday that he believes his experience building Performance Food will be helpful at Owens & Minor as the Fortune 500 company tries to steer its way through a difficult market environment, which has been particularly challenging for its legacy medical supplies distribution business.
Owens & Minor faces pricing pressures driven in part by consolidation among customers in the healthcare industry, along with higher raw materials costs for some products it distributes such as medical gloves and market share loss from what executives have described as “customer churn.”
“Our biggest challenge is that we have got very, very aggressive competition that is bidding very aggressively in the marketplace,” Sledd said. “We have got to figure out how to be just as aggressive in our pricing and bidding and still make a profit.”
Sledd succeeds P. Cody Phipps, who was chairman, president and CEO of Owens & Minor since 2015, after previously serving as president and CEO of United Stationers Inc., a Deerfield, Ill.-based national wholesale distributor of business supplies.
The company didn’t give any specific reason for Phipps’ departure. It said its board has formed a search committee to recruit a new CEO with the assistance of a leading executive search firm.
Owens & Minor, founded in Richmond in 1882 as a drug wholesaler, employs about 17,000 people worldwide. Locally, that includes about 300 people at its headquarters office, about 200 at a Hanover distribution center, and about 400 at a customer engagement center in downtown Richmond.
The company reported a profit for 2017 of $72.8 million on revenue of $9.3 billion, down from a profit of $108.8 million on revenue of $9.7 billion for 2016.
Its revenue for the first nine months of 2018 was nearly $7.3 billion, up from $6.9 billion for the same period of 2017, but the company reported a bottom-line loss of $175 million, or a loss of $2.92 per share. That compared with profit of $49.8 million, or 82 cents per share, for the same period of 2017. Most of the loss this year was driven by a non-cash asset impairment charge in the second quarter.
On Oct. 31, the board announced it was cutting its dividend to 7.5 cents per share, a reduction of 18.5 cents per share.
The company’s stock price also has declined this year from a one-year high of just over $22 per share in January. The stock price dipped below $10 per share after the company reported its third-quarter results. Shares closed Thursday at $9.32 per share, up 22 cents, or 2.42 percent, from the previous day’s close.
Anne Marie Whittemore, the lead director who has been a board member since 1991, said Thursday that the board “believes the business will benefit from a change in leadership.”
“We thank Cody for his contributions to Owens & Minor and appreciate Bob Sledd’s willingness to step in on an interim basis as we conduct a search for our next CEO,” she said in a statement. “Bob has a long and successful track record operating a large distribution company. We will benefit from his wealth of management experience as well as his knowledge of our business from his board tenure.”
Since leaving Performance Food, Sledd has served as a managing partner of Pinnacle Ventures LLC and Sledd Properties LLC. He also spent four years as senior economic adviser to former Gov. Bob McDonnell.
Sledd said Thursday that Phipps “inherited” some of the challenges Owens & Minor faces. “There are some things that over the years we could have done better,” he said.
“We are working on that, but we have not gotten to where we need to be,” he said.
In a research note published Thursday after the CEO change was announced, analysts for the wealth management firm Baird said the reduction in the company’s dividend was a “long overdue and necessary action,” but the decision had faced “severe pushback” from some shareholders.
“During Phipps’ tenure, (Owens & Minor) faced share loss, severe margin pressure on multiple fronts, ongoing hiccups with several acquisitions and diversification strategies, and assumption of significant debt burden,” the Baird research note said.
Sledd could not say Thursday how long the search for a permanent CEO might take. He said he would serve as long as needed.
“My management style is to make sure we have a great game plan in place, and then I will hold people accountable to make sure it happens,” he said. “Failure is not an option.”
Phipps, who is eligible for severance, had earned total compensation of about $6.68 million in the company’s most recent fiscal year of 2017. Most of that — $5 million — was stock awards. His base salary was $922,500.
Sledd will receive an annual base salary of $900,000, pro rated for his term of service as interim president and CEO. Based on performance, he could receive an annual bonus in 2019 equal to 125 percent of his base salary, and he is also eligible for a grant of restricted stock worth $2 million.