Sometimes the best way to unlock shareholder value is to create new companies. Here's a look at six Fortune 500 spinoffs and how they've performed since going solo.
Fortune 500 rank: 4
Refiner ConocoPhillips spun off its downstream assets to form Phillips 66 last April. The new company posted healthy profits as crude oil prices dropped and refiners’ margins increased, with earnings of $5.4 billion in 2012 vs. $3.6 billion in 2011. The solid performance allowed Phillips 66 to return $400 million of capital to shareholders in 2012 through dividends and share purchases. The company recently announced plans to form a master limited partnership of its midstream and chemical segments, with an IPO expected later in 2013.
Fortune 500 rank: 330
In 2007, Home Depot sold its industrial supply division HD Supply for $8.5 billion to a group of companies that included Bain Capital, the Carlyle Group, and Clayton Dublier and Rice. With the housing market slowly crawling to a recovery, HD Supply’s fortunes rebounded, and it now has more than 600 outlets across the nation with 2012 sales climbing 14% year over year. Former parent company Home Depot still retains a 12.5% ownership and is now one of HD Supply’s main customers, making up 4% of its sales.
Fortune 500 rank: 33
Another refiner on our list, Marathon Petroleum was spun off from Marathon Oil Corp. in June 2011 and quickly showed results with a 25% increase in its first-quarter dividend. Benefitting from low crude oil prices that helped boost margins, the company’s 2012 revenues rose 6.5%, with analysts predicting healthy long-term earnings growth of 7%. With a strong balance sheet and plenty of free cash, Marathon Petroleum remains an attractive value proposition for investors.
Fortune 500 rank: 88
In October, Kraft Foods spun off its $36 billion global snack foods division into Mondelez (roughly “delicious world” in Spanish.) The new internationally-focused company is home to powerhouse brands such as Oreos, Ritz, and Trident. The remaining company was renamed Kraft Foods Group and sells grocery brands such as Oscar Meyer, Nabisco, and Planters in North America. Both companies stumbled in their first quarters, with revenue declining 2% for snacks and 11% for groceries. Warren Buffett wasn’t thrilled with the split and unloaded shares in both Kraft and Mondelez, but both stocks have seen double-digit increases since the parting.
Fortune 500 rank: 288
The second food industry spinoff on our list comes from Sara Lee. The company — known for Ball Park hot dogs and Jimmy Dean sausages and breakfast sandwiches — bundled its meat, cheese, cake, and sandwich brands into Hillshire Brands. The remaining baked goods and beverages division was rolled into the internationally focused D.E. Master Blenders 1753. Since the split in June 2012, Hillshire’s stock has risen steadily, delivering a premium of over 15% since it debuted at $28 a share. The company is expected to pull in over $4 billion in revenue in 2013.
Fortune 500 rank: 380
The country’s third-largest defense contractor and largest military shipbuilder was spun off from Northrop Grumman in March of 2011 so Northrop could focus on its core businesses of aerospace, information systems, and technical services. Initially, Huntington Ingalls was being dragged down by its Ingalls division, whose shipyards in Mississippi and Louisiana had been damaged by Hurricane Katrina. Since then the company has closed down underperforming facilities, won a $2.6 billion ship rebuilding contract from the U.S. Navy, and grown revenues by 2% in the face of looming defense budget cuts.