RPCV and American Standard CEO Fred Poses says " you learn a lot in Peru in the Peace Corps"
American Standard's Fred Poses
An executive takes experience wherever he can get it. “You learn a lot in the sandboxes when you are a little kid,” Fred Poses says, “and you learn a lot in Peru in the Peace Corps.” The chairman and CEO of American Standard Companies spent two years in Peru working with small companies after college. “I’m not sure I raised the gross national product very much, other than the $100 a month we spent,” he says with a laugh, “but it was a wonderful experience.”
The Yonkers, New York, native and New York University grad came home in 1969 to start his career at AlliedSignal. Poses (rhymes with “roses”) shepherded the growth of some of its most profitable businesses, and in 1998 he became president and COO. In 2000, after AlliedSignal had acquired Honeywell, Poses left for the position of chairman and CEO at American Standard. He was just in time to watch its commercial business skid into a ditch as the economy slumped. But trimming costs and boosting productivity is putting the manufacturing giant back on track. Poses has launched quality and efficiency initiatives. “At American Standard I think we are in the third or fourth inning of at least a nine-inning game,” he says, “maybe extra innings, but we have the best part of those initiatives ahead of us.”—L.E.D.
Sky: Describe your business.
Poses: Our business is about $8 billion in sales in three areas. One is air conditioning under the Trane and American Standard brands. We are in the bath and kitchen business under the American Standard brand here in the United States and Ideal Standard in Europe. Our air-conditioning business is about $5 billion. Our bath and kitchen business is about $2 billion, and our third business is vehicle controls and braking systems, primarily for large commercial vehicles. That’s about a billion dollars, principally in Europe. Our bath and kitchen business, despite our name being American Standard, is actually bigger in Europe than it is in the United States. About 60 percent of [our business] is in the Americas, and 40 percent is outside the Americas.
Why does it make sense to be in three separate industries?
[In] each of them we are big relative to our competitors. In vehicle controls, we are the largest manufacturer in the world. In air conditioning, we are the second-largest manufacturer in the world. In bath and kitchen, we are the largest manufacturer in the world. They all have a technological base. They are all global. They could be independent, but we get some benefits on things we do together. Our procurement is done together. We do some marketing together. There is learning and sharing that goes on between them, in addition to some commonality in customer base.
You increased revenues and earnings last year despite a weak start and tough economic conditions, particularly in the industrial sector. How did you manage that?
Because of our size, our brands, the hustle of our people, we continue to grow and gain share in most of the markets we are in. That was particularly true last year in vehicle controls, bath and kitchen, and in residential air conditioning. We continue to work on productivity—that is the other half of the equation. While not perfect last year—we had some bumps along the road—we did a nice job in productivity.
Both air conditioning and plumbing fixtures are closely tied to new construction?
Certainly it helps when new construction is high, but 70 percent of our bath and kitchen or our residential air conditioning is either replacement or remodeling. We benefited from people saying, in some respects, “I know the safest place for me to invest is not the stock market, it’s probably my home.” We’ve benefited from that in the last couple of years and will continue to.
Energy-efficiency standards for air conditioners are set to increase 20 percent by 2004. How will that affect costs and sales?
In residential air conditioning we have the premium brand, and we have the most energy-efficient units, so we think we are well-positioned.
You and others in the industry successfully lobbied to limit the increase in the minimum SEER [seasonal energy efficiency ratio] rating to 12, instead of 13, a rating environmental activists advocated. Wouldn’t more efficient air conditioners be better for consumers, as well as the environment?
Remember, you pay more for an energy-efficient unit. So if you don’t use it that often, then forcing you to pay more for a unit doesn’t make economic sense. Maybe I could see it more in refrigeration, where your refrigerator is working 24 hours a day, seven days a week, but your air conditioner doesn’t do that. Now if you are in Florida, then high energy-efficient standards [for air conditioning] certainly make sense, but if you are in Maine, that may not be true. Forcing the standards up doesn’t always make sense.
Where is your international business?
About 30 percent is in Europe and 10 percent is in Asia. When you think about exciting growth for our company and lots of companies, you think about China. We are already a well-established air-conditioning company there, but the amount of growth has been tremendous, and it will continue to be. They actually built more commercial vehicles in China in 2002 than they did in either Europe or North America. We’ve got factories there, we’ve got the technology there to play a part in that growth.
What about growth opportunities here in North America?
[In vehicle controls,] we would double our business in North America if we had the same amount of content we have in Europe, so that’s a wonderful opportunity, [as is] taking some of the technology we’ve developed in Europe for suspension systems for cars. We are in more high-end cars and SUVs, where people are willing to pay for the value and better ride of air suspension versus spring suspension. If you think about bath and kitchen, we only represent maybe 20 percent, 25 percent of the marketplace. One of the things we are pushing, with Lowe’s [Home Improvement Warehouses] and The Home Depot and our wholesalers, is the idea of suites. The suite would be a collection of products designed to go together. If you think about commercial air conditioning, while we represent a large part of the equipment business in terms of share, we represent a relatively small part of the controls, the replacement parts and the service of that equipment.
How is your stock doing?
Our job is to get a fair stock evaluation, and I think we are working on the right things to get that evaluation. Over the last three years our stock has moved nicely, and I think there is a lot more pop in it to go. We continue to demonstrate that we can outgrow the markets, drive productivity and improve our performance.
What’s your business strategy?
We want to be better at what we do and do more things. The idea of the suites of products in bath and kitchen, the idea of the building rather than just the equipment in air conditioning, the idea of not just brakes but transmission controls in trucks, is sort of the strategy. How do we take our strengths and be more than what we are today?
What’s your corporate culture?
We want to be the best in the eyes of our customers, our employees and the shareowners. We know we are not there today.
—Lisa E. Davis
