The costs of producing and transporting goods are rising dramatically. Gasoline costs more. Demands for natural gas, coal and electricity are increasing. The prices for raw materials such as steel, copper, aluminum and brass, are on the rise.
The increased costs are forcing Wisconsin’s manufacturers to make decisions about whether to tighten their belts, absorb the costs or pass them along.
Some manufacturers are finding ways to cope with the rising costs, while others are having problems.
Racine-based Modine Manufacturing Co. has been dealing with rising prices for copper, aluminum, steel, resin and natural gas. In its fiscal fourth-quarter earnings statement, released in May, Modine posted net earnings of $12.7 million, down from $14.9 million in
the same quarter one year earlier, even though the company’s quarterly
sales increased to $416.9 million from $369.4 million a year ago.
“We’ve proven we can develop products that are valued by our customers, but we must accelerate our technology development and reduce costs to stay ahead of the curve,” said David Rayburn, Modine president and chief executive officer. “Market conditions in the second half of the year were challenging, and that trend has continued in our first quarter. They include excess capacity in the U.S. and historically high commodity pricing, including aluminum, up an incremental 23 percent over last year and cooper up well over 50 percent, and we are increasingly unable to pass this pricing on to our customers.”
Glendale-based Actuant Corp., a maker of niche consumers and industrial manufacturing and distribution operations, also is trying to cope with rising costs. During a recent conference call with analysts, shareholders and journalists, Andrew Lampereur, executive vice president and chief financial officer of Actuant, said increased costs for copper, resin and energy will adversely affect the company’s fourth quarter.
“Copper was the worst,” Lampereur said. “It rose so quickly that we weren’t able to pass on the price increases.”
The rising costs are prompting Actuant to forecast revenue growth of eight to 10 percent for 2007, down from 22 to 23 percent growth for 2006.
“For 2007, we expect our continued growth to be intact, but at a slower pace,” said Robert Arzbaecher, Actuant’s president and chief executive officer.
Comet Inc., a Menomonee Falls metal fabrication job shop with about 15 employees, has been able to avoid cost increases from rising material costs by purchasing materials on a per-job basis, said Terry Reinders, the company’s estimator who also works in sales.
“We don’t get locked into a price for a certain period of time,” he said. “And we have raised our rates. We’ve been able to pass (increases) on to the customer.”
Business slowed for Comet Inc. in May and early June, Reinders said, but the company hasn’t had to lay off any employees. Repair work started picking up in the last several weeks, he said.
“We’ve had a lot of construction repair work,” he said. “The fabrication side is not as busy as I’d like to see it.”
Sales for The Sullivan Corp., a Hartland-based metal grinding, machining and steel plate sawing firm, have increased 10 to 15 percent to date over 2005, despite a slowdown in early spring.
The Sullivan Corp. has 57 employees. The company has two divisions based in Hartland and a third division based in South Carolina.
Rising energy costs have softened the company’s bottom line, said Jim Injeski, vice president of finance for Sullivan Corp., largely because it uses large quantities of electricity and natural gas in its metal grinding and heat treating facility.
Because Sullivan’s two Hartland divisions are job shops, the company isn’t able to pass on too many cost increases to customers.
“We have to compete in the marketplace with others that may be willing to absorb those costs a little more than we are,” Injeski said.
As a result, the company is a bit cautious about its prospects for 2007, even though sales are robust.
Bradley Corp., a Menomonee Falls-based manufacturer of wash basins, eye wash stations, plumbing and related industrial and consumer equipment, has been able to pass some of those costs on to customers, said William Anderson, president and chief operations officer.
“We’ve tried very hard to negotiate lower prices with vendors that are looking for increases,” Anderson said.
Some of those prices have been tough to pass on, especially in areas where Bradley has significant competition.
As an alternative, Bradley continues to look for areas where it can get leaner. It has also purchased some new pieces of capital equipment to lower operational costs, Anderson said.
Bradley expects gains for the rest of 2006, with total revenue growth of 4 to 5 percent.
“We did some market research, and manufacturing plants are supposed to be up over 10 percent in 2006,” Anderson said. “That will trickle down, and we will get some of that business. They’re taking a good upswing with the economy. And we are stealing some market share from our competition, which is part of the growth we see.”
Demand for the engineered metal components and assemblies created by Federal Tool & Engineering LLC, based in Cedarburg,
has built steadily throughout 2006, said Steve Moyer, executive vice president.
“We’re ahead of pace and predicting growth for the next two quarters,” Moyer said. “We’re talking about 15 percent growth for the year, and we’re thrilled.”
Some rising costs for fuel and health insurance have hurt Federal’s bottom line, Moyer said, because the company hasn’t been able to pass them on. However, the company has been able to pass along some commodity price increases.
Federal has been re-evaluating its processes and implementing some aspects of lean manufacturing at its facility, which has helped reduce costs and offset higher insurance and energy costs.
“We’re not necessarily lean bandwagon people, but we’re lean mindset people,” Moyer said.
In the next few weeks, Federal will add a new laser cutting machine. The new machine will help the company operate more efficiently, allowing it to fill more orders with the same amount of employees.
“We’re thinking the next several years look to be strong,” Moyer said. “That’s one of the reasons the laser is so important, because we’re looking for productivity increases.”
Raw materials on the rise
Average Prices
2005 May 2006
Aluminum $1,898 per metric ton $2,861
Copper $3,679 per metric ton $8,046
Gold $444.8 per ounce $675.4
Iron ore 65 cents per dry metric ton 77.35 cents
Lead 97.6 cents per kg 116.7 cents
Nickel $14,744 per metric ton $21,077
Silver 733.8 cents per troy ounce 1,337.8 cents
Steel/coilsheet $733.3 per metric ton $600
Tin 738 cents per kg 883.7 cents
Zinc 138.1 cents per kg 356.6 cents
* Source: The World Bank Group
* Source: The World Bank Group
