Owens & Mi­nor names in­terim chief as com­pany bat­tles chal­lenges

Richmond Times-Dispatch - - FRONT PAGE - BY JOHN REID BLACK­WELL

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.


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