This article was originally published on Forbes.com
Back in 2015, after nearly two decades of diligent career-building across United Technologies, Paul Lundstrom fixed his career builder’s gaze upon the span of companies known as the Fortune 500.
Like many seasoned finance executives who spend the balance of their careers inside large enterprise companies, Lundstrom had to confront the obvious truth that for every company, the CFO office has but one occupant.
By all accounts, a Fortune 500 company was a worthy target for Lundstrom’s CFO ambitions, but here, too, the number of CFO roles quickly diminishes when you consider the industry-specific focus that spans the arc of Lundstrom’s career and that of so many others. Finance executives often report that it was here within this realm of heightened ambition and shrinking opportunity that they dared to add one of the most satisfying chapters of their CFO careers, and so it was for Lundstrom, too.
Last fall, the UT veteran landed safely inside the Fortune 500 world when he was named CFO of Flex (NASDAQ: FLEX), a $24 billion contract manufacturer. However, it was the 4 years between UT and Flex that Lundstrom now points to as constituting one of the most satisfying periods of his career.
It was during this period that Lundstrom occupied the CFO office at Aerojet Rocketdyne (NASDAQ: AJRD), a struggling aerospace company with less than $2 billion in sales annually. At Aerojet, Lundstrom would add an impressive turnaround chapter to his CFO resume, one that he now says he’s able to take inspiration from as he takes on new challenges at Flex.
“I look at Flex as being largely akin to Aerojet Rocketdyne,” comments Lundstrom, when asked what he expects to achieve at Flex. “We’re going to have a fair amount of capital deployment opportunities over the next 2 years, so this is going to be another transformation journey.” Lundstrom adds that the “Flex journey” began to interest him after he had spoken with Flex CEO Revathi Advaithi, an operations-minded business leader who had joined Flex in 2019 from the Electrical Sector business of Eaton, a power management company with more than $20 billion in sales.
“When I spoke with the CEO, she was very focused on transformation. She didn’t like the margin profile, and she wanted to do some portfolio work,” recalls Lundstrom, who notes that while Flex faces nowhere near the same challenges as Aerojet, a transformation will now be key to unlocking future value for Flex shareholders.
“When you demonstrate a track record of improving operating performance, investor sentiment starts to change, and they say, ‘Hey, I’m willing to pay a premium for this stock,’” comments Lundstrom, once more summoning his recent Aerojet experience—which actually began with a call from a recruiter back in 2016.
“My initial response was, ‘Oh, that sounds a little small,’” recalls Lundstrom, who says that at the time, Aerojet Rocketdyne had annual sales of roughly $2 billion, compared to UT which reported nearly $60 billion in sales for 2016.
Still, there were other factors that perhaps weighed more heavily in Lundstrom’s decision.
“Aerojet Rocketdyne was a fixer-upper, to put it lightly,” says Lundstrom, who would join the aerospace firm in November of 2016. For its part, the company had earlier in the year restated its earnings for a series of quarters stretching all the way back to 2013.
According to Lundstrom, his predecessor as Aerojet’s CFO had served double duty as both finance chief and controller. What’s more, the company’s tax function had been entirely outsourced, as had been most of its internal audit organization.
“To top it all off, investors would call and complain that we were not taking calls,” says Lundstrom, who recalls thwarting any hesitation to take action with the all so dire thought: “Things aren’t going to get any worse.”
Among Lundstrom’s top-priority items was hiring a strong controller and exercising greater discipline when it came to meeting the filing deadlines for Aerojet’s financial statements.
Next, Lundstrom says, Aerojet “green-fielded” its own tax team, beginning with the hiring of a senior tax executive whom he credits with very quickly having an impact.
“Within 3 months of joining the company, he came into my office and said, ‘We’ve done a little bit of digging and found that we actually have overpaid our income taxes by about $20 million,’” explains Lundstrom, who notes that the same executive proposed remedying the situation through a “quick refund” that would allow the monies to be reported during what was the current quarter.
“I thought to myself: This is a company that has been scratching for every penny, and meanwhile we’ve had $20 million sitting on the sidelines,” remarks Lundstrom, who credits the experience with having influenced his opinion regarding the outsourcing of different functional areas, particularly when they relate to finance.
“The staff in public accounting come and go, and I think that there is real value in having local ownership and a more intimate knowledge of the underlying business,” comments Lundstrom, who reports that once the finance department was populated, the focus moved to establishing a “regular cadence” within the business.
“Finance was able to set the direction for margin expansion by helping to establish accountability for cash generation goals deep inside the organization,” says Lundstrom, who remembers that when he arrived at Aerojet, its stock was trading at a “five-turn discount” from the prices of comparable aerospace and defense stocks.
“When you close the multiples gap, that’s when you get stock price appreciation and value creation,” notes Lundstrom, whose CFO tenure at Aerojet coincided with a rise in the company’s stock price from $16 to $50 per share (pre-Covid).
Meanwhile, this past December—3 months after Lundstrom exited Aerojet to join Flex—Lockheed Martin announced plans to acquire Aerojet as part of a $4.4 billion all-cash transaction. While Raytheon has since announced plans to oppose the deal and bring its case to regulatory agencies, Aerojet’s turnaround appears to be no less a reality.
“Lockheed Martin recognized the value and that would be a nice take-out price,” says Lundstrom, who credits Aerojet CEO Eileen Drake and Aerojet’s larger transformation team for edging closer to what could be a satisfying end chapter for Aerojet.
Asked to sum up the transformation, Lundstrom begins by repeating his initial feedback to the recruiter: “This is a $2 billion NASDAQ company that doesn’t have a controller.” – Jack Sweeney