ENDEVCO INC.
Like the steel industry, the oil and gas industry has more than occasionally suffered for its size. And, again, as in the case of the steel industry, along have come smaller, more flexible, more opportunistic companies that have feasted where others have starved. Case in point: Endevco Inc. (#1), in Dallas, a full-service natural-gas processor/transporter showing $92.4 million in revenues for 1984 and a first-place spot on INC.'s 1984 list of America's fastest-growing small public companies.
With only around 50 employees, Endevco handles all gas services from the wellhead to the wholesale customer; more of its resources are being diverted to exploration and development of reserves as well. But the company's real hallmark has been marketing. "Natural-gas marketing is the budding new development in this industry," avers chief executive officer James W. Bryant. "Because of a temporary oversupply in delivery capacity, a lot of wells have cut way back on production. And much of the gas that is there is tied up in long-term, 'take or pay' contracts that force transporters and users to pay for it whether they take it or not. What we do is go after industrial customers that have either been buying gas at spot prices or are considering switching to alternative fuels such as coal or fuel oil. Then we work our way back to the producers, often getting cheap gas released from existing contracts."
Bryant acknowledges that at least part of Endevco's success has been timing. "You can't really blame the big companies," he continues, "because when they sold [the old gas] under contract, they thought prices and consumption would stay up. It hasn't, and that's stuck them with reserves that are pricing them right out of the market." Endevco's response to this industrywide dilemma has been to market off-price gas with relatively long (up to five-year) contracts featuring "take or release" clauses that effectively open up the fixed-rate price schedule after a period of two years. At the production end, it has negotiated "market out" agreements that have freed it from having to accept expensive gas it can't sell. Thus protected two ways, the company has flourished by handling smaller accounts, and smaller profit margins, than its large competitors simply could afford to bother with.
Despite Endevco's impressive performance, 1983 didn't seem a great year for taking an energy company public; trying to spark investor interest in a gas company, commented one industry newsletter, was like "sending a punk-rock band to a debutante ball." In fact, Endevco had to cut back both its offering (from 1 million shares to 900,000) and price (from $10 to $6) during last-minute softness in the market. According to Bryant, however, the $4.6-million net -- 13 times 1981 earnings -- was adequate to pay down a sizable chunk of bank debt and still fund short-term investments and development efforts. Can Endevco continue to grow at its own swift pace?
"It would be awfully difficult to do if we were much bigger," admits Bryant, "but our five-year plan now is to grow at a compound rate of 40% on an average per year. We estimate we have less than 1% of the market right now. We think 2% to 3% is not unreasonable. For a company our size, we've got a lot of people [seven, including Bryant himself] out there selling deals. It's a marketing game now." And Endevco is playing for keeps.
CONTINENTAL HEALTH AFFILIATES INC.
According to Jack Rosen, CEO of Continental Health Affiliates Inc. (#70), in Englewood Cliffs, N.J., it is a question of costs. With health care already gobbling up close to 10% of our gross national product, doctors, hospital administrators, and government officials alike are under pressure to cut. "The obvious result is that hospitals will be looking to discharge patients much earlier," Rosen argues, "and the only alternative is home care."
Cost-effective home care, already a $2.5-billion market, should continue to be the fastest-growing segment of America's fastest-growing industry, Rosen argues. And Continental -- a $14.1-million company that has expanded from providing home-care nurses to providing the equipment and training for such sophisticated techniques as infusion therapies, dialysis, and chemotherapy -- should continue to expand as well.
The only problem is attitude. Not toward the patients, who generally prefer the comfort and security of treatment at home when possible. Instead, Rosen says, "the biggest constraint we've faced is winning acceptance by physicians and hospital administrators. Both groups traditionally earned their income within a hospital setting, and they are concerned with the loss of that income But they'll have to learn to do their business in a nontraditional way."
JEFFREY MARTIN INC.
Three years ago, Purex Corp. approached Jeffrey Martin Inc. (#75), in Union, N.J., and its CEO, Martin Himmel, with an acquisition offer. Purex, manufacturer of several over-the-counter medicines and beauty aids (including Doan's Pills for backaches, Bantron Smoking-Deterrent Tablets, and AYDS Appetite-Suppressant Candies), wanted Himmel, known as "Mr. Network Radio" of brand-name advertising, to pump some new marketing life into its tired product line -- much as Himmel had done for his own company brands like COMPOZ Nighttime Sleep Ayd and Topol Smokers' Tooth Polish.
After listening to Purex executives talk strategy, however, Himmel had a better idea: buy the Purex line himself and take full charge. Son Jeffrey Himmel, vice-president of corporate development, explains:"There are a lot of products out there with great brand-name recognition and consumer acceptance that are woefully undermarketed," he says. "These products have become marketing misfits, and we go after them aggressively."
Indeed they do. Although it doesn't manufacture any of its health and beauty products, Martin markets them with sufficient zeal that it is now the largest single network radio advertiser in the country (nine-month total in 1983: $13.9 million), the second largest transportation advertiser (more than $6 million last year), and one of the top 100 of all ad agencies; fully half the firm's gross earnings are plowed back into advertising, much of it into off-peak radio slots in which airtime is relatively cheap and the product climate favorable (COMPOZ, for instance, is heavily plugged on late-night talk shows). Martin's in-house production staff and media departments also emphasize product repositioning, as was the case with Cuticura, a 100-year-old soap reintroduced as a product for "combination" dry and oily skin. Topol remains the company board leader with a 3.7% share of the $950-million toothpaste market, good for 41.6% of total earnings.
