ERLY Industries Inc.
ERLY Industries Inc.
Incorporated: 1964 as Early California Foods, Inc.
Sales: $487 million (1996)
Stock Exchanges: NASDAQ
SICs: 2044 Rice Milling; 2084 Wines, Brandy & Brandy Spirits; 8748 Business Consulting Services, Not Elsewhere Classified
Owner of one of the largest rice companies in the world, ERLY Industries Inc. operates as an international agribusiness company through three principal subsidiaries: American Rice, Inc., Chemonics International—Consulting, and Chemonics Industries—Fire-Trol. In 1995 ERLY Industries derived $373 million of its $459 million in sales from its American Rice subsidiary, one of the world’s largest processors and marketers of branded rice products. American Rice’s geographic reach extends far and wide, with its branded rice products market leaders in the United States, Canada, Haiti, Puerto Rico, Mexico, Saudi Arabia, and Asia. The brand labels marketed by American Rice included “Comet,” “Adolphus,” “Blue Ribbon,” “Abu Bint,” “Green Peacock,” and “AA.” ERLY’s two other major subsidiaries, Chemonics International—Consulting, an international agribusiness consulting firm, and Chemonics Industries—Fire-Trol, which produce forest fire-retardant chemicals for the U.S. and Canadian Forest Services, contributed $64 million and $23 million in sales in 1995, respectively.
For the first two decades of its existence ERLY operated as a vegetable processor, relying on its “Early California Foods” label to sustain and propel its growth. Incorporated in 1964 as Early California Foods, Inc., the company was formed by Gerald D. Murphy through the merger of B. E. Glick & Sons and Pacific Olive Company. Early California Foods, Inc., existed for four years until the company began to diversify through a long series of acquisitions. The acquisition spree, touched off in 1966, engendered a new name in 1968: Early California Industries, Inc.
Pacific Cherry & Fruit Corporation was acquired in 1966, followed by the addition of White House Foods, Inc., and its wholly owned subsidiary, Lady’s Choice Foods, in 1967. Next, the company acquired two pickle processing and packaging companies, Eastern Pickle Products, Inc., and International Pickle Briners, in early 1968. Later in the year, when the name change to Early Industries, Inc., was effected, the company acquired Arizona Agrochemical Corporation, a producer of agricultural chemicals, fertilizers, insecticides, and fire retardants.
1970 Acquisition of Comet Rice
In 1969 four new companies were purchased: Fairfax Food Corp.; Festival Foods of Los Angeles; Clarke Publishing Company, publisher of a weekly shopping newspaper in Portland, Oregon; and Coronet Foods Corporation. In April 1970 Early California Industries acquired Houston, Texas-based Comet Rice Mills, Inc., for $4 million, thereby laying the foundation for the company’s future as one of the world’s leading processors and marketers of rice. Over the next 20 years, “Comet” brand rice grew into a widely recognized label, becoming one of the leading brands of rice in the United States, Canada, the Caribbean, Mexico, and South America.
During the 1970s, Early Industries acquired businesses involved in newspaper publishing and wine production (Sierra Wine Corporation), as well as the Maxwell, California-based United Rice Growers.
1985: The “New” ERLY Emerges
The company’s founder, Gerald D. Murphy, remained on as chairman and chief executive officer, and in 1985 Murphy began making changes that launched ERLY’s global expansion. To a reporter from California Business, Murphy said, “Never before has the case for global expansion been so compelling. Change necessitates adaptation and innovation.”
In 1985 the vegetable processing division was sold, marking the exit of the brand name Early California Foods. The following year the company adopted the name ERLY Industries Inc. Two years later, Murphy began gradually to distance his company from the wine business. At the same time the company began displaying its first interest in the troubled TreeSweet Company, a fruit juice producer mired in Chapter 11 bankruptcy protection.
1988 Acquisition of American Rice
In 1988 ERLY acquired 48 percent of Texas-based American Rice, Inc., an agricultural co-operative. Once American Rice was merged with ERLY’s Comet Rice processing and marketing subsidiary, the basis was established for one of the largest rice companies in the world.
Elsewhere within ERLY’s operations, preparations were being made to enter the juice business in earnest. In September 1988, Murphy completed the acquisition of the citrus division of Kraft, Inc., located in Florida. ERLY also obtained several packing plants in the Midwest, which strengthened the capabilities of the ERLY-owned TreeSweet once the juice maker emerged from bankruptcy in 1989.
By the end of the 1980s, the pieces were in place for the construction of the new ERLY, and the company began showing encouraging financial gains. In 1990 annual sales climbed to $431 million from $313 million the year before, and a $2 million loss in net income in 1989 was transformed into an impressive $14 million profit in 1990. Business was moving forward on all fronts. The company’s juice business, was demonstrating profitability, its rice interests showed great promise, and the company’s two smaller divisions, a manufacturer of fire-retardant chemicals for crops and an agricultural consulting group that assisted governmental agencies in developing countries, were poised to garner a high percentage of profits by virtue of their low overhead costs.
Confidence was high at the company’s executive offices, prompting Murphy to declare that it was ERLY’s objective “to be a global company of over a billion dollars of annual sales” by fiscal 1993, an objective that would require the company to more than double in size within two years. Instead, however, ERLY stumbled, as political developments outside the company’s control sent profits tumbling.
Effects of the Gulf War
During the late 1980s the Middle East, and Iraq in particular, became a primary market for ERLY. The single biggest buyer of Comet rice in the Middle East was the Iraqi Grain Board, the official buyer for Saddam Hussein’s regime. When the Gulf War broke out in 1991 and touched off a U.S. embargo of Iraq, the company lost a $130 million market, causing earnings to fall sharply. ERLY lost $12.5 million in 1992 and another $8.6 million in 1993, while sales shrank from $218 million in 1991 to $214 million in 1992 and down to $169 million in 1993, the year Murphy had hoped sales would eclipse $1 billion.
To make matters worse, the company was delisted from the NASDAQ exchange from July 2, 1993 to August 15, 1994 for capital insufficiency, adding further pain to the damage inflicted by the Gulf War and requiring an immediate response from Murphy and the rest of ERLY’s executive management. To effect a recovery, Murphy restructured operations and trimmed debt. Payroll was reduced, several divisions were consolidated, and some operations were divested, including ERLY’s juice division in 1993. That same year, the company increased its ownership stake in American Rice to 81 percent and began to substantially reduce its reliance on rice markets in the Middle East. The changes sparked growth throughout ERLY’s operations during 1994. By the end of the year, sales had climbed to $284 million, and, perhaps more encouraging, net income had soared to $17.6 million, up from a $8.6 million loss the year before.
ERLY entered 1995 once again on strong footing, with record earnings achieved by each of the company’s three principal subsidiaries. American Rice, two years after depending on business in the United States and in the Middle East to provide nearly 80 percent of its total sales, derived less than 50 percent of its total volume from these two massive markets in 1995. Ambitious worldwide expansion had compensated for the reduction, and as the rice processor and marketer headed toward the late 1990s, it was selling rice in 44 countries, with no single foreign country accounting for more than 14 percent of total sales. By year’s end, global expansion had pushed sales up 31 percent to a record $373 million.
Chemonics International—Consulting, meanwhile, completed its first year as an independent entity in 1995, after having completed consulting contracts in 92 countries since its formation by ERLY in 1975. As the ERLY subsidiary prepared for the late 1990s, it was widening its scope as an agribusiness consultant and casting itself as an organization able to help developing countries clear the hurdles toward privatization. In 1995 the consulting subsidiary was involved in 46 contracts that were regional or worldwide in geographic scope, including work in Egypt, the Philippines, Central and South America, Nepal, Indonesia, and Russia. Collecting more than half of its sales from countries in the Near East and Eastern Europe, Chemonics International—Consulting registered record sales in 1995 of $64 million, a 64 percent increase from the previous year’s total.
The smallest of ERLY’s subsidiaries recorded the greatest gain in sales. Chemonics Industries—Fire-Trol controlled 45 percent of the U.S. market for forest fire retardant chemicals and 80 percent of the Canadian market, supported by a Fire-Trol product line with more than 42 registered patents. Sales increased an impressive 173 percent for the subsidiary in 1995, reaching a record $23 million and rounding out the company’s financial gains.
American Rice, Inc. (81%); Chemonics International—Consulting; Chemonics Industries—Fire-Trol.
“A Rice Trader May Start to Steam,” Business Week, September 26, 1994, p. 112.
Walsh, James, “ERLY Industries: A Tale of Strategic Positioning,” California Business, July-August 1991, p. 12.
Wells, Shan, “Market,” California Business, June-July 1993, p. 43.
—Jeffrey L. Covell