By any measure, Gehl Co. and chairman William Gehl are survivors. After all, they have overcome years of a depressed market for agricultural and construction equipment. They also overcame a hostile takeover bid and shareholder calls for a change in the corporation’s management.
And they’ve emerged on the other side of a recession with a remarkable turnaround story.
In the first six months of 2004, Gehl’s stock was the top-performer in the BizTimes Stock Index. The index, which was created by Small Business Times and is monitored by North Shore Bank, is a weighted indicator of stocks for publicly held companies based in southeastern Wisconsin.
Gehl’s stock jumped from a year-opening mark of $14.15 per share to $20.00 per share on June 25, a 41.34 percent increase.
A variety of factors converged to revive the West Bend company, according to Robert McCarthy, a stock analyst at R.W. Baird & Co. Inc.:
— The simultaneous rebound of the highly cyclical agricultural and construction equipment markets.
— Low interest rates, which encouraged farmers and construction companies to buy more equipment.
— Pent-up demand for the equipment after years three years of recession.
— A resolution of the uncertainty about the corporate leadership that had plagued the company for several years.
That last factor is as significant as the others, McCarthy said. A Texas-based investment group, consisting of Newcastle and CIC Equity Partners, had used a proxy fight to pressure William Gehl to be removed from the board of directors of his company. That fight left some scars on the company, but the investment group finally sold its shares in 2001 to Neuson Kramer Baumaschinen AG, an Austrian firm that supplies equipment to Gehl.
"Improved corporate earnings and management confidence" contributed to Gehl’s turnaround, McCarthy said.
Another factor has been the evolution of Gehl’s construction equipment, such as steer loaders, which farmers also have found to be useful tools, McCarthy said.
The company also reduced its roster of primary manufacturing sites from four to two, thereby becoming more efficient, McCarthy said.
In announcing his company’s first-quarter results, William Gehl said, "The return of rental customers to the telescopic handler market, the successful introduction and market acceptance of new Gehl skid loader models and the growing demand for compact track loaders generated double-digit top line growth over last year’s first quarter. The sales increase in the quarter was stronger than anticipated, improving our revenue outlook for the remainder of 2004."
McCarthy noted that Gehl’s stock had historically underperformed relative to its industry sector and had room for improvement, McCarthy said.
"We’re happy with their financial performance," McCarthy said. "There’s room for more growth."
"Growth" was not a commonly heard phrase in the American industrial sector in the first three years of this decade.
However, a Baird review of the 35 stocks in the BizTimes Stock Index found that eight of the 10 top-ranked local stocks belonged to manufacturing companies. In addition to Gehl, they included: Twin Disc Inc. (up 31.63 percent); Briggs & Stratton Corp. up 29.67 percent); Harley-Davidson Inc. (up 29.03 percent); Johnson Outdoors Inc. (up 29.01 percent); Badger Meter Inc. (up 15.20 percent); Modine Manufacturing Co. (up 13.83 percent); and Strattec Security Corp. (up 10.93 percent).
The non-manufacturers in the top 10 were financial services companies MGIC Investment Corp. (up 31.63 percent) and State Financial Services Corp. (up 13.33 percent).
The economic recovery is strong enough today to spur growth for American manufacturers, many of whom are shifting production to cheap labor markets, such as China, McCarthy said.
"There are a variety of macroeconomic indicators that have been in an upward trend for months now," McCarthy said. "Employment in the industrial sector has been one of the last sectors to show improvement in a recovery. And this IS a recovery."
Twenty-two of the 35 stocks in the BizTimes Stock Index posted gains in the first six months of the year.
The worst-performing local stocks so far this year belong to: Middleton Doll. Co. (down 64.52 percent); Fresh Brands Inc. (down 29.55 percent); Criticare Systems Inc. (down 26.29 percent); Merge Technologies Inc. (down 16.38 percent); and A.O. Smith Corp. (down 13.69 percent).
Overall, the BizTimes Stock Index began the year at 142.62 and increased to an all-time high of 145.89 at the close of trading June 25. That 2.3 percent growth exceeded the flat broader stock market indices.
The BizTimes Stock Index, which is updated after the close of trading each business day, is available at www.biztimes.com.
July 9, 2004, Small Business Times, Milwaukee, WI
