Corporations: The Litton Lesson

“Our method of management,” says Litton Industries President Roy Ash, “is a way to solve problems as well as to pursue opportunities.” When it comes to pursuing opportunities, at least, Litton’s past performance certainly bears Ash out. In the 14 years since it was founded by Chairman Charles (“Tex”) Thornton and Ash, the Los Angeles-based conglomerate has ballooned into a $1.7 billion-a-year giant by diversifying into everything from cash registers to shipyards.

The company’s ability to solve problems is now getting a major test. Reason: Litton has suffered a reversal after 57 straight quarters of record profits. In the quarter ending Jan. 31, its earnings were $7,205,000, a drop of 56% from a year before. Though other corporations have their upsand downs, Litton long claimed that its growth-by-acquisition philosophy afforded protection against the kind of slumps that afflict less diversified companies.

Obvious Swipe. Litton had also prided itself on being one of the best managed of the conglomerates. Thus it was all the more remarkable that Thornton and Ash laid much of the blame for the company’s earnings decline to “certain earlier deficiencies of management personnel.” Though the Litton chieftains did not elaborate, company insiders interpreted that as an obvious swipe at William McKenna, who resigned as a Litton senior vice president last November to become president of Hunt Foods and Industries. After all, many of the company’s biggest setbacks have occurred in the business-equipment group, which McKenna headed for almost four years.

Among the key troubles were strikes at production plants, lagging sales in office furniture and delays in the planned introduction of several new business machines, including the company’s Royfax 1700 photo copier and a new Royal portable electric typewriter. Now, however, the strikes have been settled, and Litton is taking steps to eliminate the other problems as well.

To make its office furniture more competitive, the company has introduced production economies and lowered prices. It also expects good returns on its new photo copier and typewriter, both of which have gone into production. With such development in mind, Thornton and Ash look for improvement in the company’s overall fortunes by the time the next quarter begins on May 1. Subsequently, they said in their latest earnings statement, there should be a “substantial resumption” of Litton’s past growth trend.

No Immunity. Wall Street can only wait and see. After the first word of trouble last month, Litton’s stock, which stood at over $120 a share last October, tumbled to a 1967-68 low of $67.13 (last week’s close: $68.75). That decline helped trigger a slide in other conglomerates and glamour issues as well. For whatever Litton’s future fate, its recent experience has proved that not even the highest-flying company is immune to possible setbacks.