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By the numbers? Not exactly

Success not found solely on bottom line, some profit losers find

By Peter J. Howe, Globe Staff, 5/16/2000

ne of the most impressive trends to emerge from the new Globe 100 list of companies whose profits boomed or cratered last year - showing what extraordinary economic times these are in Massachusetts - was how easy it was to make the losers' list.

Potent one-time losses did not stagger Millennium Pharmaceuticals or its chief executive, Mark Levin. (Globe File Photo)

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Another is that Wall Street can still love you even if you lose piles of money - as long as they are the right piles of money.

Bay State companies that saw their net income slip by $10 million to $12 million during 1999, in many times a bad but not necessarily catastrophic year, wound up in the top 10 list of profit nosedivers.

For example, just by losing $23,000 in 1999 - compared with a $9 million profit a year earlier, as it shifted its business focus from Y2K readiness to e-commerce - software concern Atlantic Data Services Inc. of Quincy earned a place in the profit-nosedive column.

And four companies that made the top 10 list for the absolute number of dollars they lost during 1999 - Millennium Pharmaceuticals, Sepracor Inc., CTC Communications Group, and Alkermes Inc. - were nevertheless stock-market darlings. Over the last 12 months ending May 5, their shares have soared roughly 250 to 400 percent, reflecting Wall Street's love of biotechnology and telecommunications companies pouring money into corporate growth, even if it means oceans of red ink.

''We are in amazing times,'' said Allan Cohen, the Edward Madden Distinguished Professor of Global Leadership at Babson College in Wellesley, consultant and author on corporate change. ''It's entirely possible that a company that is off 10 percent is nevertheless doing the right things.''

One big caveat to all the profitability lists is that they were heavily influenced by big one-time charges, especially for biotech companies.

Cambridge-based Millennium, for example, reported an absolute loss of $379.9 million, a one-year drop of $390.24 million, largely because of a one-time, $350 million charge related to its acquisition of LeukoSite.

The company's stock, nevertheless, has quadrupled in the last year, and times are definitely good at Millennium: Chief executive Mark J. Levin made headlines last month for buying the single-most expensive home ever sold in Rhode Island, a $10.85 million, 33-room mansion in Middletown that came with a llama, two peacocks, and nine African deer that live on the grounds.

Likewise, Ariad Pharmaceuticals Inc. of Cambridge, Palomar Medical Technologies of Beverly, and Spire Corp. of Bedford all showed huge profit margins - the first two with net income greater than sales - because of selling subsidiaries last year.

And medical device maker Boston Scientific of Natick posted the state's single-biggest dollar improvement in net income as it came off a 1998 in which it took huge charges for its $2.1 billion acquisition of Schneider Worldwide and wrote off phony income related to ''business irregularities'' at its Japan division.

Even so, factoring out special charges, Boston Scientific net income rose 39 percent during 1999 to $371 million.

''I would call last year a consolidation year,'' said chief executive James Tobin. ''It was a year of getting our act together and building the base, and 2000 is the year we are turning the corner.''

In terms of which Massachusetts companies made the most money, FleetBoston Financial easily topped the list with net income of just under $2 billion, although costs related to merging Fleet and the former BankBoston caused the combined company's profit to slip 12 percent from what the two had earned separately the year before.

And disgruntlement among customers over the bank mega-mergers may have contributed to the strong showing of several smaller banks. Brookline Bancorp Inc., MassBank Corp. of Reading, Andover Bancorp Inc., and Home Port Bancorp racked up profit margins of 36 to 44 percent during 1999.

''The banks are mirror images of the local economy,'' said Joe Casey, chief financial officer and treasurer of Andover, which has 12 branches and is pursuing an acquisition of the parent of Gloucester Bank & Trust. ''We will do well as long as financial times are great, everyone is employed, and the stock market is high.''

Casey said he thinks regional banks have benefited from picking up customers turned off by the spate of large bank mergers.

''We've seen a lot of fallout from people who are sick of being seen as just a number by the big guys,'' Casey said. That has led to more business and bigger profits, especially in commercial lending.

Other giants of the local economy, such as Gillette Co., State Street Corp., TJX Cos., Staples Inc., and Allmerica Financial Corp. continued to dominate the big profit earners.

The ongoing woes at Raytheon Co., however, which has seen overseas orders slow and has had trouble digesting acquisitions, caused it to slip from number three in 1998 to number six last year, as net income dropped by nearly half. And Hopkinton-based EMC Corp., the titan of large computer storage devices, climbed a notch to number three as its net income grew more than 54 percent to $1.01 billion.

''We have created a market with no visible limits,'' said Michael Ruettgers, chief executive of EMC.

Among other notable results:

The second- and third-biggest profit drops during 1999 were racked up by Thermo Electron Corp. and Thermo Ecotek Corp., one of the two dozen Thermo subsidiaries spun out pell-mell by founder George N. Hatsopoulos over four decades.

In February, with Hatsopoulos replaced as chairman by former American Stock Exchange president Richard Syron, Thermo agreed to realign itself into three divisions and dump businesses with annual sales totaling about $1.2 billion. Charges against earnings of $450 million for the restructuring, announced in 1999, contributed to the pounding of the two units' net incomes.

Two stars of last year's Globe 100, Waltham laser surgery provider Summit Technology and Cambridge laundromat supplier Mac-Gray Corp., were back in the doghouse in 1999.

Summit, which was last year's ninth-best overall performer, was buffeted by competitors' price cuts and costs related to its acquisition of an Orlando firm, and saw net income drop nearly $60 million. Mac-Gray, a ''growth gazelle'' last year, saw a $12 million reversal in its profits.

Selling tools for e-commerce proved a meal ticket. RSA Security Inc. of Bedford, a maker of computer and Internet security systems, had a profit margin of 84 percent. Banyan Systems Inc. of Westborough, which recently renamed itself ePresence, earned more than $26 million in net income on sales of $45.8 million, helped by marketing deals with Microsoft and CBS.

''We are a big believer in profitable growth as opposed to just growth,'' said ePresence senior marketing vice president Scott Silk. ''We are just huge believers that having cash is going to be king in this new market, and we think earnings are going to be coming back into vogue soon.''


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