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Tuesday, September 19, 2006

The Ten Worst Managed Companies In America Bristol-Myers, Amazon

From 24/7 Wall St.

We set out to pick the ten worst managed companies in America for the year that began June 2005 and ended June 2007. At this point virtually all companies have reported their June financials and filed their 10-Qs.

We looked only at companies with market capitalizations of over $1 billion. Most of the companies on the list are much larger. We looked at several financial measurements: return on invested, return on asset, return on equity, gross margins, sales growth over one, three and five years and operating income growth over the same period. To be fair, we made the comparisons within industries so we would not be comparing airlines with banks.

The other important aspect to our evaluation, and the most difficult, is picking companies where management was responsible for decisions that went wrong. In an industry where all companies are doing very poorly, management may not be the single most important key to financial and stock market performance. Even in strong industries bad management may cripple a company. We looked for a combination of poor long-term strategic decisions and tactical mistakes in areas like marketing, operations, or manufacturing.

The companies are not presented in any particularly order. The first company on the list is not considered more poorly managed than the company presented in the sixth or seventh place. We will cover two companies each day for the week so that by Friday the full list of ten will have been posted.

3. Bristol-Myers Squibb (BMY) Over the last five years, Bristol-Myers has fallen from about $60 to $25. It took the firing of the CEO to bring the stock out of the low $20s. Merck, Novartis, and Pfizer have all outperform Bristol-Myers over that period. The company’s annual sales have been slightly down from 2003 to 2004 and 2004 to 2005. Operating income has also dropped over the same period.

BMY has been through a rough ride, and much of it has been due to management. The company has restated earnings twice in five years. The company has run afoul of government regulators over antitrust and marketing issues. The company’s best selling drug, Plavix, is under siege by generics and has not been adequately replaced by new drugs to offset the upcoming revenue decline.

BMY has several new drugs that may help the company get back on the track of better earnings growth. These include treatments for several cancers, HIV, and severe mental disorders. However, the company has lost so much confidence with investors that it will take more than one or two successful product launches to get it back.

4. Amazon (AMZN) The management at Amazon is like the gang that couldn’t shoot straight. After hitting $60 in late 2003, the stock has dropped to $32. Even Yahoo!’s stock has done better over the last five years.

Amazon almost certainly has made a strategic mistake by moving beyond its core business of selling books and CD’s. The company now sells video downloads and groceries, businesses that are almost certain to be better run by firms in those industries.

Sales from Q1 06 to Q2 dropped from $2.3 billion to $2.1 billion. Net income fell from $51 million to $22 million. The company’s return on assets was over 21% in 2004. In 2005, that number dropped to just over 10%.

Amazon could not stick to its knitting. And, it shows.

1. The Ford Motor Company (F) can be found here.

2. Affymetrix (AFFX) can be found here.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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