There is optimism in manufacturing, if you look in the right places

Others see start of ‘deep and broader potential contraction’

manufacturing activity

Last updated on March 17th, 2020 at 01:36 pm

The rain, cold and snow this fall may have caused problems, but Manuel Merkt is hopeful that Hermle USA will be able to enclose the company’s expansion by the end of the year and start working on the interior.

Hermle is the U.S. subsidiary of German machining center manufacturer Hermle AG. The company is adding 15,000 square feet to its Franklin facility, giving it more warehouse space and allowing room for its showroom and training space.

“We’re excited, we can’t wait to use the new space,” said Merkt, president and chief operating officer of Hermle USA. “Our current facility, we grew out of it a while ago.”

Hermle embarked on the expansion in late 2018 just as the manufacturing industry was coming off its most recent peak in activity. Since then, the sector as a whole has seen declining output, falling sentiment and continued uncertainty from global trade sessions.

On the surface, it might seem that it is a less than ideal time to be in the business of selling machining centers as businesses hold off on making investments.

But Merkt said Hermle remains busy to the point that the company doesn’t have the staff to expand its apprenticeship program.

“It’s a matter of resources right now for us,” he said. “Everyone we have on board is occupied supporting our customers.”

The aerospace and medical sectors in particular have been bright spots.

“We work with a lot of different industries,” he said, crediting the company’s diversification with helping sustain the higher level of activity.

Many of the headlines coming out of the manufacturing industry in recent months would run counter to Merkt’s experience. The Milwaukee-area PMI has been in negative territory for five of the last six months, matching a similar trend from its national counterpart. Wisconsin’s exports are also down and the Federal Reserve cited a lack of business investment as one of its reasons for cutting interest rates.

Merkt acknowledged that customers who deal directly with car manufacturers have been more cautious in recent months.

The automotive sector is one area where Milwaukee-based Rockwell Automation sees some opportunity, albeit in electric vehicles, not in traditional models. The company forecasts its business in the sector to be flat in fiscal 2020. The automation giant also forecast organic revenue to be flat in 2020, seen by many analysts as a more optimistic outlook than expected.

Blake Moret, chairman and CEO of Rockwell, said the company is traditionally more conservative in its estimates, but repeatedly expressed confidence in the company’s own internal capabilities to overcome external challenges.

“There’s a balance between what is undeniably continued uncertainty, we continue to see decelerating macro indicators, industrial production and so on but then on the other side we’re very optimistic about our ability to gain share regardless of what those numbers are,” Moret said.

On autos specifically, Moret said Rockwell’s product portfolio is well-positioned for faster adoption of EVs, noting it involves less subtractive manufacturing like CNC and metal cutting compared to traditional internal combustion engines.

“It doesn’t look like there’s going to be as much demand as was first though for hybrid (vehicles),” he said.

While Moret is optimistic, Tom Burke, CEO of Racine-based Modine Manufacturing Co., has a decidedly different outlook. The company made the strategic decision to exit the automotive business earlier this year and it still working to find a buyer.

In the meantime, the company has “experienced a significant slowdown” in several end markets, including a drop in North American and Asian auto and global off-highway sales and a lower outlook for the company’s data center business.

The result is the company cutting its fiscal 2020 outlook following its second quarter from a sales decrease of zero to 5% to a drop of 7% to 12%. The change represents a decrease of around $100 million at the midpoints.

Modine also announced a restructuring program aimed at saving $25 million to $30 million annually.

Burke told analysts the actions were intended to prepare for a “deep and broader potential contraction, in our markets anyway.”

“We’re structurally going to have to make some changes to get through this contraction,” he said, later adding “We’re not going to be caught standing flat-footed.”

Gale Klappa, executive chairman of Milwaukee-based WEC Energy Group, was somewhere between Moret and Burke when he updated analysts last week. He said the utility has seen a 4.5% to 5% decline in energy consumption year-over-year by its industrial customers.

“If you look at economic conditions in Europe, the trade tensions with China, I think you see those as the reasons why we’re down in terms of industrial sales,” Klappa said, noting 20% to 25% of Wisconsin’s industrial production is designed for export.

He described the downturn as more of a “pause” and said WEC Energy Group has been regularly monitoring energy demand from industrial customers. Klappa added the company is in the process of interviewing its largest customers to update its forecasts.

“I wouldn’t get overly concerned about this bit of downturn that we’re seeing in industrial,” he said. “It is something that we had anticipated and planned for.”

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Arthur covers banking and finance and the economy at BizTimes while also leading special projects as an associate editor. He also spent five years covering manufacturing at BizTimes. He previously was managing editor at The Waukesha Freeman. He is a graduate of Carroll University and did graduate coursework at Marquette. A native of southeastern Wisconsin, he is also a nationally certified gymnastics judge and enjoys golf on the weekends.

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