A Painful Lesson

Ever since hard-driving Harold S. Geneen resigned last May as executive vice president, the stock of Raytheon Co. of Waltham, Mass. (1959 sales: $494 million) has been slipping. In three years Geneen had reorganized Raytheon, stepped up profits. But he craved the title and authority to go with the hard work. In his way stood Raytheon President Charles Francis Adams, the shrewd and respected Yankee banker who took over Raytheon in 1948, but whose talents are more on the financial than the production side. Announced Geneen abruptly one day: "I'm resigning." He is now president of International Telephone & Telegraph Corp.

Last week Charles Francis Adams showed that he had learned a painful lesson. He took for himself the newly created post of chairman, and for his successor as president chose a man who has been with Raytheon only a year: Executive Vice President Richard E. Krafve, 52, onetime general manager of Ford's ill-fated Edsel. Adams had promised Krafve the presidency when he made him executive vice president last fall, gave him the interim period to get acquainted with the entire company operation. Adams and Krafve say they will work as a team, each sharing the authority of chief executive.

Finger on the Problem. Raytheon's stock, which had reached a peak of 73 7/8 the month Geneen quit, last week was down to 43 1/8. Raytheon's 1959 earnings did not keep pace with the company's gains in 1957 and 1958, and its first-quarter 1960 earnings, announced last week as 56-c- a share, were also below forecasts. Despite a Government-guaranteed loan of $75 million, Raytheon has needed more and more money. Last week the company announced a $100 million bank-financed loan with which it hopes to retire its $75 million loan, put its indebtedness on a less costly basis.

Charles Francis Adams placed the chief blame for Raytheon's money needs on its rapid expansion to increase production of the Hawk and Sparrow missiles. In adding 10,000 new employees in the past twelve months, Raytheon has suffered a drop in efficiency, incurred heavy expenses that are often avoided with slower growth.

"These costs will, we think, begin to pay off in 1960," says Adams. "We are certainly far from satisfied with 1959 profits and with first-quarter results, but we've got our finger on the problem and we're doing something about it. I don't see any justification for the sort of gossip that you pick up on Wall Street that indicates that Raytheon is going to hell in a hack."

Wearing an Albatross. Financial men view Minnesota-born Dick Krafve with some reservations because of the Edsel fiasco, but he wears his albatross cheerfully. Says he of the Edsel: "It was a matter of timing. If we had gotten it out sooner it would have been tremendous." Both he and Adams are convinced that Raytheon can be reorganized at great savings, are on the lookout for profitable companies Raytheon can buy into.

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