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11/11/92


TITLE Chattem's Zan Guerry: Leading His Team Against Giant
Consumer- Product Rivals Christine Shenot

For Zan Guerry, who in two years has turned the small, non-
descript company that his Tennessee family has owned for 113
years into a fast-growing maker of consumer products that's mak-
ing Wall Street take notice, business is pretty much like foot-
ball.


"You have an offense and a defense," he says, "and you want to
win."

Guerry, chief executive of Chattanooga-based Chattem Inc., says
teamwork, strategy and determination make winning companies. He
ought to know.

He played football and basketball as a teen-ager, and from the
age of 10 he toured the country playing tennis, first on the
junior circuit and later as a student at Rice University. He even
played professionally for a short time, Zan Guerry

"just to get it out of my system." Those experiences seem to fig-
ure prominently in the way he runs the company his ancestors
founded in 1879 - perhaps more than the MBA he received from the
Wharton School of Business or his early jobs at Coca-Cola Co. and
Texas Commerce Bancshares Inc.

With a down-to-earth management style suited to his Chattanooga
roots, Guerry, 43, says his preparation for the business world
began in his youth, when he was traveling and competing in tennis
matches around the nation.  Playing the tennis circuit as a kid,
he said, "You learn flexibility, how to read people . . . and you
know that you're going to have good days and bad days.  "Most
business executives try to overcomplicate a relatively straight-
forward situation," he added.

Guerry also had 12 years of training at Chattem prior to becoming
CEO. He began on the financial side, doing product acquisitions;
later he became president of the consumer products division and
eventually chief operating officer.  He sees his present role at
Chattem -which he assumed after the death of his father, the
former CEO, in 1990 - as similar to that of the coaches he


Guerry Has Chattem Exploiting Niches

admired in his youth. Keeping a level head in the face of chal-
lenges is one part of it. Instilling enthusiasm and devising a
strategy that makes the best use of his team's strengths is
another.  At Chattem, whose $108 million in annual sales are re-
latively small for the consumer products field, that strategy has
been to acquire and aggressively promote health and beauty aids
that have unrealized potential in market niches where industry
giants keep a low profile.  "As a small company, we need to
select areas to compete in where we can be successful," Guerry
said. "If I go compete against Advil and Tylenol and Bayer, I'm
going to get murdered." Analysts say Guerry's successful execu-
tion of this strategy and his energy and zeal for competition are
rapidly transforming Chattem, whose brands -such as Pamprin for
menstrual cramps and Sun-In hair lightener -were far better known
to consumers than the company was to investors.

Redefining Company

"They have redefined what kind of company they want to be," said
Lawrence Marsh, an analyst with Wheat First Securities Inc. In
the past, Chattem had been closely held and run much like a
private firm. But lately, Marsh says, it has sought to identify
itself as a growth company with its eye on returns to sharehold-
ers.

On both counts, Chattem is delivering.  During the past six quar-
ters, the company has posted solid profit gains in a clear rever-
sal of its uneven performance through the mid- to late-1980s. In
the third quarter ended Aug. 31, earnings grew a better-than-
expected 50% to 45 cents a share, as sales rose 19% to $28.9 mil-
lion.  Since Guerry took the helm in June 1990, Chattem stock has
more than tripled, after going nowhere for most of the '80s.  Ro-
bin Murchison, an analyst with Southcoast Capital Corp., points
to the rapid sales growth of two newly acquired products as key
to the company's recent performance.  The first, a pain-relief
ointment called Flex-All 454, was a regional brand with annual
sales of about $1 million when Chattem acquired it in 1989. To-
day, the product is being touted by former football player Joe
Namath in a national advertising blitz that has boosted sales to
an estimated $20 million.

More recently, Chattem last year bought a second analgesic balm,
Icy Hot, from Procter & Gamble Co. Murchison sees sales of that
product this year increasing some 50% to more than $7 million.

Finding Promising Brands

These two products illustrate the characteristics Chattem seeks
in adding to its line.  Flex-All 454 had been sold only in cer-
tain regions of the country, and Chattem saw the potential to
take it nationwide. Icy Hot, on the other hand, had been an in-
significant brand for consumer products giant Procter & Gamble
and didn't get the advertising support that could boost its
sales.  The identification of promising products that have been
"neglected" by manfacturers is only one part of the formula
behind Chattem's success. The other, said Murchison, is Guerry's
skills as a "natural marketer." William Oliver, an analyst with
Equitable Securities Corp., agrees.  "The company is very effec-
tive at targeting the types of people it wants to buy its pro-
ducts," he said. And Chattem's spending on advertising and promo-
tion - at a level equal to 30% of its sales - is well above the
industry average.  "You don't often find a company of this size
with the ability to promote its products like this," Oliver ob-
served.  Guerry, whose enthusiasm for marketing traces back to
his days working for Coca-Cola, says he's merely responding to
the realities of the business.  "We're playing a game of outmark-
eting the competition right now," he said. "Our business is
fought out there in those drug stores." Beyond making a heavier
overall commitment to advertising through careful cost control in
other areas of the business, Guerry said Chattem is becoming more
aggressive in marketing by making big bets on the products it be-
lieves have the greatest potential.

"We put half of all our media dollars last year on Flex-All," he
noted.

In addition, Guerry says Chattem has gone on the offense in its
small specialty chemicals business, which for many years had been
strictly a cash cow operation run in conservative fashion.  Going
forward, Equitable's Oliver says the company's challenge is to
build on its recent track record of identifying and acquiring
promising "orphaned" products.

Size Advantages

He notes that many such products should become available in the
years ahead because several consumer products firms have grown
large enough that they need to slim down and become more focused.
And Chattem, which has virtually eliminated its debt after years
of operating as a highly leveraged company, has the cash to ramp
up its acquisition activities.  In addition, Guerry says the com-
pany is still small enough that it can respond quickly when pro-
ducts come available.  "I anticipate using our advantage of speed
and flexibility very aggressively," he said.

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