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The Rust Belt is scraping the rust off, as reborn industrial outfits start to hum

For M.A. Hanna Co., the changeover was essential, painful, and complete. Slammed by Asian competitors, the venerable Cleveland supplier of iron ore and coal nearly went belly-up in the early 1980s. With its reserves poorly located or mined out, Hanna was forced to dump the minerals business and cut its workforce of 8,600 by more than half.

But that wasn't enough. Hanna needed a new raison d'tre. Helped by CEO Martin D. ''Skip'' Walker, a veteran executive hired from Rockwell International in 1986, Hanna edged into the fast-growing fields of specialty plastics and rubber.

This year, Hanna's sales were $2.1 billion, and Walker, who will step down next June, expects them to double by 2001.

ROARING RETREADS. Hanna's comeback story is being repeated all over the U.S. industrial heartland. Revived companies can be found in industries such as plastics, machine tools, auto parts, aerospace, valves, railroads, food processing, and lighting.

The steel industry is full of corporate makeovers. In Akron, B.F. Goodrich is 10 years into its quest to turn itself into an aerospace and specialty-chemicals company, and its stock is trading at an all-time high. Cleveland's Allen Group switched from manufacturing mostly automobile test equipment to parts for mobile-communications gear.

The newest trend is the spin-off. Many industrial behemoths are completing transformations in their core businesses that have taken years and are shedding noncore properties. The spin-offs are often far more profitable than they were with their mother corporation. One example is Imation, which came to life in July after Minneapolis' 3M realized it couldn't manage all of its 52 far-flung business units. Imation inherited 3M's computer-related products. As an independent outfit, Imation is better suited to keep costs in line and keep pace with research and with fast-changing markets.

Earthgrains Co. is a similar story. For years, the nation's second-largest baking outfit, then known as Campbell Taggert Inc., was a small cog in the Anheuser-Busch Cos. beer empire. In a major 1995 restructuring, Anheuser shed the baking company and other subsidiaries unrelated to brewing. Since then, Earthgrains' stock has doubled, to about $50.

GOOD FORTUNE. Other strong performers in the old Rust Belt were lucky when they picked their niches some years ago. In the late 1960s, Toledo auto-parts maker Dana Corp. decided to avoid the passenger-car market and put more energy into light trucks, a less cyclical sector. The company plodded along until the early 1990s, when sport-utility vehicles became the rage. Dana rebounded from its worst year in many in 1991: It prospered by making the axles for Ford Explorers and Jeep Grand Cherokees. Dana is also looking to expand overseas--a strategy well under way at Hanna. In the past three years, Hanna has picked up no fewer than 15 foreign manufacturers--including, recently, two plastics factories in China.

Machine-tool maker Cincinnati Milacron also took big hits from foreign competition. Now, it has found such profitable niches as supplying bits and fluids for industrial machines, and its overseas sales have expanded. Says President Raymond E. Ross: ''We're going to be profitable this year for the first time since 1981.''

Corporate remolding, especially through spin-offs, will continue into 1997. One to watch is Newport News Shipbuilding, which Tenneco Inc. let go on Dec. 11. The Virginia shipyard, the only one left building large Navy vessels, has contracts for a new class of submarines and two aircraft carriers, including one due for launching in 2002. It will be named after Ronald Reagan, another product of the heartland.

By Peter Galuszka in Cincinnati


TABLE: Betting On Revivals


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Updated June 13, 1997 by bwwebmaster
Copyright 1996, Bloomberg L.P.
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