OKLAHOMA CITY -- Fleming Cos. here announced a series of facilities consolidations and personnel reductions last week that are expected to lower operating costs by at least $65 million per year over the next two years.
In a major restructuring that represents the leadership direction of its new president and chief executive officer, Robert E. Stauth, Fleming said it anticipates consolidating an unspecified number of grocery and general merchandise distribution centers; implementing a new, re-engineered approach to operating procedures, and undertaking an organizational realignment that ultimately will cut its work force by at least 2,000 people, or 9%.
The personnel reductions will not occur until the company determines which distribution centers it wants to consolidate, Fleming officials told SN. That process, they said, is not likely to be decided for several months.
In disclosing the restructuring program, Fleming also announced a number of changes in its operations management and reporting relationships. (See related story, Page 42.)
According to Stauth, "We are
not simply restructuring the company -- we are re-engineering the way we operate.
"Rather than merely dividing the same work among fewer people, we are eliminating functions that are redundant, inefficient or that do not add economic value.
"This program is the result of a thorough review of all operations and business strategies and is consistent with our strategy to improve company performance through development of larger, more productive distribution centers and by eliminating functions and operations that do not add economic value.
"All of our efforts are focused on the clear objective of increasing shareholder value through consistent growth in earnings over the long term."
To cover costs associated with the pending consolidation of facilities, Fleming said it will take a pretax charge of about $101 million in the fourth quarter of 1993, which ended Dec. 25 -- a move that will reduce earnings by about $62 million, or $1.68 per share.
The charge includes a provision for writing down some physical retail-store assets, primarily in Fleming's former Mid-South and Southern regions "that are no longer of strategic value to the company," Stauth said. Those stores -- the company declined to pinpoint the number -- are company-owned locations, most of which Fleming took over when their previous owners went bankrupt.
Fourth-quarter results will be released Feb. 10.
Although Fleming apparently had been working on the restructuring framework for some time, discussion of some final details went down to the wire. Stauth, who was attending the Food Marketing Institute Midwinter Executive Conference in Florida early last week, conducted a three-hour meeting via telephone with Fleming's board to hammer out some 11th-hour matters.
"Turning around a company this large is not an easy task," Stauth explained. "It will take us some time to accomplish all we have planned, and we do not expect earnings improvement in core operations this year.
"Although our plan for 1994 is still under review, our primary focus is to implement the changes we have outlined, as opposed to maximizing near-term results.
"During 1995, however, we expect earnings to benefit from the[se] initiatives and for the company to begin to demonstrate a pattern of earnings growth."
The restructuring will include the following:
Immediate elimination of Fleming's five regional staff offices (Eastern, Mid-America, Mid-South, Southern and Western). The 100 employees who worked at the five offices have been offered other positions at the corporate or division levels, a company spokesman told SN.
Consolidation and realignment of several operating divisions -- a move not likely to occur for several months. The pending consolidations are unrelated to Fleming's previous consolidation efforts, which reduced the number of grocery warehouses from 31 to 27.
Re-engineering of operational procedures throughout the company, including implementation of various Efficient Consumer Response concepts and an increase in the decision-making latitude of individual distribution center managements.
Brooks O'Neil, a securities analyst at Piper Jaffray, Minneapolis, said Fleming's planned operational changes and consolidation are "steps in the right direction" by Fleming
"It gives them the potential to begin to restore profitability. The unfortunate thing about these actions is that they don't necessarily address some longer-term issues." Those include the longer-term viability of some marginal customers who have been extended credit and loans by Fleming.