NEW YORK -- For decades after World War II, PHH Corp. provided fleets of cars to America's business giants and helped their executives find homes and mortgages. As U.S. industry conquered new markets at home and abroad, the Hunt Valley company grew into the nation's leading provider of relocation services.
But that lucrative business began to stagnate toward the end of the 1980s, as big companies faced an era of tough competition and were forced to squeeze costs.
Some clients went under completely; others cut back sharply on relocations. PHH's revenue stagnated and profits fell -- plummeting 24 percent in 1990 and helping to push the company's stock to a 10-year low.
Recently, however, Wall Street has detected a noticeable change in PHH's fortunes.
A new strategy has the company aiming its auto and real estate services at other organizations besides members of the Fortune 500. Despite problems in expanding overseas, profits could hit a record this year. The stock is trading at levels not seen in 10 years.
"They're changing the focus of their business and by all accounts seem to be succeeding," said Clifford Ransom, an analyst with Raymond James & Associates Inc.
Recently released earnings showed that PHH's revenue was up 5 percent, to $539 million, for the three months that ended July 31, and that profits soared 17 percent, to $14.8 million. The cost of doing business went up only 1.8 percent, thanks partly to investments in technology that has allowed information processing to be centralized in Hunt Valley.
The developments have pushed PHH stock near a record high. Earlier this month, it reached $46.75, just shy of its 1983 record, and finished yesterday at $46.50.
At an annual meeting with Wall Street analysts this week, the company won high marks for laying out a coherent strategy for future growth at a time when big companies were expected to cut back relocations even further.
At the heart of the company's new strategy was a realization that its traditional business was not just suffering from the 1990 recession. It was also being threatened by an independent trend to cut costs and boost productivity.
Forced to pay an average of $50,000 per executive move, companies have realized it did not always make sense for executives to hopscotch around the country as they had during the post-war era.
Stumbling giants such as International Business Machines Corp., for example, once moved 4,000 executives each year in the mid-1980s, but now only move about 900. Even successful companies, such as General Electric Co., cut corporate relocations during this period, from 2,700 a year to 1,200.
This trend had stifled PHH's core business. Fewer relocations meant less need for PHH's service in selling an executive's home and helping buy and finance a new one. The company's auto leasing business suffered from corporate cost-cutting.
Always a hard company for Wall Street to pigeonhole, PHH was ques
tioned by analysts about its strategy as they wondered if the company's best days weren't behind it.
To counter this trend, PHH has started selling its services to national "affinity" organizations, such as USAA, a company that offers services primarily to current and former military members.
Since it started working with USAA two years ago, PHH has written 17,700 mortgages for the company under the USAA label -- helping PHH's mortgage business increase 27 percent last year alone.
"Why limit ourselves to the 100,000 company elites? There are 3.6 million non-job real estate transactions each year that we can be involved with," said Stephen A. Fragapane, head of relocation and real estate services at PHH.
PHH hopes to sell some auto services to these affinity groups, Chief Executive Officer Robert Kunisch said. PHH owns, leases and maintains about 450,000 cars for companies such as Johnson & Johnson. It hopes to sell USAA members, for example, a maintenance package in which PHH would maintain their cars.
Currently, about 80 percent of PHH's business comes from owning an asset and reselling or leasing it out -- typically, property and cars. The remaining 20 percent comes from fees for advising or providing services.
In the future, the company wants to reverse that mix so that most business comes from fees, which are not as dependent on changes in the real estate market or interest rates, Mr. Kunisch said. In the USAA deal, PHH does not own the property; it simply uses its size and expertise to get mortgages on favorable terms for USAA members.
"We're taking our basic relocation product and going after a whole new market," Mr. Kunisch said. "And we want to reverse our revenue mix within three years."
The model for this change is PHH's British operations, in which 60 percent of the company's revenues come from fees, such as a repair package it offers British Automobile Association members.
One hitch to the company's plans has been its effort to spread its services worldwide. A three-year project in Germany, which has the world's second-largest corporate car fleet, has led to a series of frustrations that PHH is only now righting, Mr. Kunisch said.
In Germany, the problem has been that PHH has not been able to offer enough services to corporate clients. PHH typically offers a service card to drivers of its cars, which they can use at several major oil companies and at certain repair facilities.
To date, PHH has signed up only one oil company and has not gotten Mercedes-Benz to take its card. Many corporate executives in Germany drive Mercedes, and their companies do not want PHH's service card if they cannot get cars serviced at Mercedes dealerships.
To counter this, Mr. Kunisch has sent top executives to Germany and pledged that the problems would be worked out within coming months. In the future, Germany is to be PHH's toehold in continental Europe.
"We aren't counting on our traditional sources, because we think they will shrink," Mr. Kunisch said. "The measure of our success is if we can shift to newer services in these changing times."
Headquarters: Hunt Valley
Revenue: $2.1 billion *
Net income: $61.2 million *
Total employment: 4,800
Maryland employment: 1,200
Chief executive officer: Robert D. Kunisch
Lines of business: (% of rev.)
Vehicle Management: (43%)
Relocation and real estate services: (30%)
Mortgage Banking: (27%)
* Estimate for fiscal year ended April 30, 1994.