Manufacturing a rebound

The United States lost roughly 7.3 million jobs during the Great Recession, with unemployment hovering around 10 percent through December of 2009.

The manufacturing sector has been one of the hardest-hit segments of the economy – losing approximately 2.1 million jobs since 2007.

However, there are signs that some manufacturers could experience a significant rebound in 2010.
Butler-based Actuant Corp. is one of those rebounding companies. The company has shown signs of life in its first quarter fiscal 2010 results – reporting $11.9 million in net earnings, an improvement over the earnings of $11.6 million from one year earlier.
Actuant had $1.24 billion in earnings for fiscal 2009, which ended in August, compared with $1.66 billion in fiscal 2008.
“When I look at the calendar year (of 2010), I think we will have positive core growth in the 3 to 5 percent area,” said Robert Arzbaecher, chairman and chief executive officer of Actuant. “We saw sequential improvement starting in the May and June (2009) time period in most of our industrial markets, and it has continued since then.”
Manufacturers such as Actuant that have survived the recession can expect recovery in 2010 because of economic improvement and internal changes they likely were forced to make in recent years.
“I think it will get better for (other manufacturers) for the same reasons our sales have started coming back up,” Arzbaecher said. “I don’t think it’s going to get worse, and if they’ve gotten this far, they’ll be fine.”
Actuant’s earnings are likely to increase because of acquisitions, Arzbaecher said. The company expects to spend up to $150 million on acquisitions during calendar 2010, Arzbaecher said. Its lone acquisition last year was New York-based Cortland Companies.
“We’re guessing that we’ll do three to five deals in the $20 million to $50 million range in size,” he said. “We have a bunch of things that are in the funnel. Most of it is in the energy and industrial areas. That’s where we are focused on doing most of our growth right now.”
Actuant has offices in 30 different countries, and manufacturing facilities across the United States., the United Kingdom, China, Western Europe, Mexico and other countries. The company has almost 6,000 employees around the globe, with about 650 workers in Wisconsin. Most of its Wisconsin workforce is in the Milwaukee area.
Through its 31 different brands, Actuant’s business units offer products and services in the industrial, electrical, energy and engineered solutions markets.
Many of the manufacturing and service sectors that Actuant operates in are poised for significant recovery during 2010, Arzbaecher said. Those areas include energy exploration and production, industrial products and services, engineered solutions for transportation products and electrical tools and devices.

Through portfolio companies such as Hydratight Ltd., Actuant serves customers in the oil and gas exploration and extracting industries.

“Oil in particular is a big piece, probably about half of our total energy platform,” Arzbaecher said. “We do onshore, platform and deep sea drilling. We are still very strong bulls on the move toward deeper water drilling.”
Actuant’s portfolio companies weld and maintain pipes and other connections in deep water oil applications, and manufacture seismic streamers used in the deep water oil exploration process. Rising oil prices and new oil reserves discovered recently point to a continued demand for oil in the coming year, giving Actuant and other companies that service the sector new opportunities, Arzbaecher said.
Actuant’s companies also service natural gas transportation lines, another energy sector poised for growth in North America.
“They’ve found a way to fracture the shale that hides the (natural) gas. We’re excited about the new technology around gas,” Arzbaecher said. “There are lots of finds in states like Louisiana, Kansas and Colorado. All of these things bode well for the Hydratight product line and the technicians that we bring to market.”

Actuant’s companies make industrial products such as lifts, jacks, pumps, hand tools, work holding systems and industrial anchoring products.

The inventory correction that significantly slowed sales for many manufacturers during the Great Recession appears to be a thing of the past for Actuant and many other manufacturers that sell to OEMs and other industrial companies, Arzbaecher said.
“In most of our (sales) channels, we’re seeing orders ahead of sales,” he said. “You’re starting to get that normalized pattern where orders are slightly ahead of sales. When the economists and pundits finally analyze this thing, they’re going to figure out that the inventory correction was a big deal in this recession. It’s a hard number to get your arms around. But in my belief, it is behind us.”
Actuant’s customers in the rail, power generation, industrial distribution maintenance repair and overhaul, and infrastructure categories have significantly increased orders for equipment and machinery over the last six months and will likely increase further in 2010, Arzbaecher said. The company’s customers that need maintenance on oil and gasoline refineries will likely show recovery in late 2010 or 2011, Arzbaecher said.
“Our oil assets were still positive with double-digit growth all the way through February and April (2009) when the industrial markets were still going down,” he said. “That would be the piece we would view as a little suspect yet, where we have not seen the sequential bottom yet.”


Actuant makes contractor-grade products for electrical testing and repair that are sold through stores such as Home Depot, Lowe’s and Menard’s, and the company has seen sales increase to that market since last spring.
“When you hear public announcements (from the big box home improvement stores), you hear that the consumer is back in their stores, and they are starting to see their comparables get better,” Arzbaecher said. “We’re feeling good about that side of the business. It’s a good bellwether look into the economy for us, and I think the prognosis is quite a bit better than it was a year ago.”
Engineered solutions
Actuant’s companies produce engine emission reducing and cab tilt products for large transportation trucks. Arzbaecher believes the company will see significant rebound in those markets in 2010 and beyond.
“We are big truck believers,” he said. “You cannot have the kind of outsourcing that has happened on a worldwide basis (continue), whether it’s to China or India, the product still has to get back to where the consumer is. The truck is going to be around.”
The domestic and European truck market is weak, but Chinese transportation firms have risen as fleets there continue to upgrade, Arzbaecher said.
Many automotive suppliers have struggled with the low levels of car sales through the recession. However, Acutant’s automotive orders have increased over the last several years. One of its portfolio companies designs and builds the control systems that raise and lower convertible roofs.
“You can hate automotive, but this is a highly engineered product that the customer is willing to pay for,” Arzbaecher said. “We don’t have any of the commodity type exposure that other (companies) might have.”
Over the past 12 months, Actuant has gained new relationships with Mercedes-Benz and the Chinese auto manufacturer Chery. While Actuant is enjoying success in the automotive realm, Actuant is not rushing to bolster its holdings in the sector.
“My view is similar to Johnson Controls – I wouldn’t want it to dominate my portfolio, but we provide a very strong niche,” Arzbaecher said. “We like what we own – we’re making it better, come out with new products and globalize it. But we take the cash flow that it generates, and we deploy it in other places like energy that we think have higher growth.”

Actuant will move into new HQ this year

Later this year, Actuant Corp. expects to consolidate some of its Milwaukee-area operations into a 300,000-square-foot facility near the intersection of Main and North 124th streets in Menomonee Falls.

Its facilities in metro Milwaukee have been spread between seven different buildings in Glendale and Butler.

In August, Actuant purchased a 175,000-square-foot building formerly occupied by Bemis Manufacturing Co. facility. Actuant is expanding that facility to 300,000 square feet and expects to move the operations of three of its electrical businesses there by August.

“We’re closing a Charlotte (N.C.) distribution center, we closed a manufacturing center in Napa Valley (Calif.) and a little bit of warehousing in Spring Grove, Ill., and we will put all of that into our campus with our Gardner Bender product that we already own,” Arzbaecher said.

Later this spring, construction will begin on a new, 75,000-square-foot corporate headquarters office facility that will be built across the street from the former Bemis building and will house Actuant’s leadership, its LEAD (Lean Enterprise Across Disciplines) staff, Enerpac segment and leadership from several other business segments.

One of Actuant’s long-term goals has been housing all of its leadership in one building, Arzbaecher said.

“This is a very verbal company – we go into each others’ offices and make things happen, and getting back onto one campus where that can happen is going to be an important benefit,” he said.

The company’s new office building will also incorporate a training facility, where its global team will be able to interact with corporate leaders.

“We’re going to be bringing people from all over the world for training in this facility and we wanted to step up our image there,” Arzbaecher said. “If you’re going to be in for training, you’re almost unavoidably going to run into people from corporate, so that verbal interaction is going to be quite easy.”

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