CEOs come and go for a variety of reasons: retirement, scoring a better gig, or performance-based termination. Whatever the reasoning may be, a new CEO can make a big difference at a company.
Whether that difference is a positive or negative one is where things get interesting. Last October, I introduced five CEOs to keep an eye on in 2012. Now that our leaders have been at the helm of the ship for a bit, let's check in on how they're doing.
1. William Brown at Harris (NYSE: HRS)
Brown has been the CEO at Harris for four months now. Brown's experience in commercial markets was supposed to be one of his upsides, intended to help keep Harris relevant in the event defense spending experiences a significant decline.
Just last week, Harris announced a new "rugged" tablet fit for defense and public safety use. Soldiers and firefighters can use the tablet to obtain "mission-critical" information. And this thing is no iPad. Instead of Angry Birds and the latest issue of Cosmo, the RF-3590 comes equipped with an accelerometer, digital compass, pressure and temperature gauges, a gyroscope, light sensors, and a slew of other things GI Jane might need.
The new tablet runs on Google's Android software. Defense contractor, meet the commercial market.
2. Thomas Stabley at Rex Energy (Nasdaq: REXX)
Fourth-quarter estimates were a bit disappointing for Stabley's first full quarter at the helm of Rex. After beating analyst estimates the previous two quarters, Rex fell short for the fourth quarter of 2011. The company recorded earnings of a loss of $0.07 per share, while analysts had expected a gain of $0.07 per share. The silver lining, perhaps, is that an increase in revenue led to an improvement over the loss of $0.15 per share Rex reported during the fourth quarter of 2010.
Analyst estimates for the first quarter of 2012 sit at $0.10. The company is doing a good job of keeping costs down, and if revenue continues to increase, the company has a solid chance to meet expectations next quarter.
3. David Meeker at Genzyme
There has been a spate of tough news for Sanofi's (NYSE: SNY) Genzyme subsidiary. The company recently announced it was shutting its research and development operations in Cambridge, U.K., and announced a recall of close to 10,000 vials of the leukemia drug Fludara due to sterility issues.
Perhaps the situation seems more serious than it actually is, however. The recall was limited to one batch, and the R&D facility closure was part of a larger restructuring plan coming in the wake of Sanofi's purchase of Genzyme last year for $20 billion.
Genzyme's sales rose 0.8% in 2011, and Sanofi is counting on the subsidiary to help mitigate the loss of patent-protected drug revenue going forward.
4. Rory Read at Advanced Micro Devices (NYSE: AMD)
When Rory Read took over at AMD, he gave a companywide speech referencing a "pirate mentality" and motivated a group of employees who had watched their company make a series of screw-ups to the point where many in the industry were questioning its relevancy.
Arr -- things are changing, matey. Read recruited top talent from Apple, Freescale, and McKinsey & Company in an effort to turn the company around. New gaming projects are generating a lot of buzz, and Read is such a formidable presence at CEO that Forbes is profiling him in the March 12 issue of its magazine.
Fool tech analyst Evan Niu acknowledges something is happening at AMD, and the company should be an interesting one to watch in 2012.
5. Paul House at Tim Hortons (NYSE: THI)
I honestly didn't think I'd be writing about Paul House as CEO of Tim Hortons at this point. House has served as interim CEO for almost a year now. The organization, though it continues to search for a permanent chief executive, certainly isn't complaining.
Same-store sales, the metric of all metrics in the restaurant industry, grew 5.5% at Tim's Canadian locations and 7.2% at U.S. locations during the fourth quarter. Full-year sales rose from $2.54 billion in 2010 to $2.85 billion last year.
For 2012, the company is planning a $200 million share buyback program. Tim's also plans to open between 250 and 290 locations this year, the bulk of which will be in Canada, while the remaining posts will appear in the U.S. and the Middle East.
Testing a theory
Last year, a study by FTI Consulting found that a positive stock reaction on the day the new leader is announced typically resulted in the stock outperforming the market by 19% six months later. When a stock fell on the announcement day, it subsequently underperformed the market by an average of 17% over the following six months.
For some of these CEOs, it hasn't quite been six months, but curiosity has gotten the better of me. Here's how FTI's theory pans out in the cases above:
|
CEO/Company |
Announcement Date |
Reaction |
Subsequent Performance |
|---|---|---|---|
| William Brown/Harris | Oct. 10, 2011 | Rise | 20.32% |
| Thomas Stabley/Rex Energy | Oct. 10, 2011 | No change | (11.60%) |
| David Meeker/Genzyme (Sanofi) | Oct. 24, 2011 | Rise | 5.50% |
| Rory Read/AMD | Aug. 25, 2011 | Rise | 17.11% |
| Paul House/Tim Hortons | May 25, 2011 | Drop | 5.07%* |
Source: Company statements, YCharts.
*Through November 25 only.
Harris is the only company that confirms FTI's findings in the strictest sense, though AMD comes close. It is interesting to note that the companies whose stock rose on a CEO succession announcement did book positive performance six months later.
Foolish takeaway
A new CEO can make all the difference in the world. It's certainly interesting to consider theories from quants and consultants regarding stock performance, but the best way to truly gauge the potential a new CEO can bring to a company is to monitor his or her decisions, staying up to date on company goings-on by utilizing tools like My Watchlist.
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