As the coronavirus, and the economic fallout created by the response to the virus, have hit the United States, many have sought comparisons to prior downturns.
“I don’t think you can even go back in history, clear back to the Depression, you can’t really emulate where we’re at right now. It’s very difficult to predict,” said Randy Baker, chief executive officer of Menomonee Falls-based Enerpac Tool Group.
Baker talked about the potential disruption from the coronavirus on Enerpac’s second quarter earnings call in mid-March. The maker of industrial tools had seen its Chinese operations idled for part of January and most of February and doing business around Asia had become increasingly difficult.
“We could see that it was definitely going to have an impact, but no one could have predicted how swiftly it came into Europe and into the U.S.,” Baker said in an interview with BizTimes.
Enerpac’s tools are used to maintain power plants, nuclear sites, military operations and heavy-duty manufacturing so it, along with suppliers, are generally able to keep operating. But the pandemic is already translating to lower order rates and uncertainty about future demand.
Baker said the company is in a good position financially, but still needs to take actions to react to the changing landscape.
“When you’re running a business like this, you have to think about how fast can my cost ideas affect the profitability of the company, and then you separate the ones that are going to be more long-term in nature versus the ones that affect this quarter and the next quarter,” Baker said.
The actions Enerpac settled on included a two-week furlough program and suspending the company’s 401(k) match and its fiscal 2020 annual bonus program. Enerpac recognized $2.7 million in 401(k) expenses and paid out almost $490,000 to named executive officers under the annual bonus program in fiscal 2019.
“That’s an immediate cost savings, not something that sprinkles in over the course of 20 months,” Baker said. “We don’t know what this is going to look like in six months so we really wanted to make sure we initiated cost savings as fast as we could.”
Baker said he’s sought to reassure employees that the company is in a good position financially, both in twice-weekly meetings with senior leaders globally and in weekly calls with all employees.
“You’re not hearing that from some companies. They’re struggling already and we’re still just starting,” he said.
Baker added that the things companies strive to do in good times – keep a strong balance sheet, avoid taking on too much debt, running plants efficiently, and developing new products – pay off now.
“All the things you want to work on in an up market become even more relevant in a down market,” he said. “That’s going to make the difference between companies that come through this with a few battle scars that are still operating and doing well versus ones that have to raise even more debt to stay in business long term and, at some point, they lose the ability to do that.”
The ability to communicate via video conference has made it easier to manage the business than in the past,” Baker said.
“If this had happened 10 or 15 years ago before we had the web-enabling technology we have now it would be almost impossible to stay operational, just between calling each other and email, you couldn’t really collaborate on the level we’re doing right now,” he said.
Having 1,500 employees working remote and conducting virtual meetings has also changed Baker’s thinking about how to work after the virus.
“Why are we hauling ourselves all to Europe to sit down and do a meeting and come home?” he asked. “It certainly will have an impact on the travel industry, but it’s going to help our cost structure.”
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