BUFFALO’S BUSINESS
Executives hope for best in downturn
If you talk to local executives these days, one of the words you’ll hear an awful lot is hope.
As in, “We’re hoping that we’re reaching for the bottom”: Robert T. Brady, Moog Inc.’s chairman and chief executive officer.
As in, “We’re sort of hopeful that it’s leveling off”: David Lupp, Mod-Pac Corp.’s chief financial officer and chief operating officer.
As in, “Clearly, we hope for better”: Brian
J. Lipke, Gibraltar Industries’ chairman and chief executive officer, referring to the company’s expectation that its losses will shrink in the second quarter, thanks partly to a small, seasonal increase in sales.
These executives are hoping because their first quarters were pretty rough. Moog reported its first decline in quarterly profits in 14 years during the winter quarter, although the Elma motion-control equipment maker remains solidly profitable despite a sharp downturn in its industrial products business.
Gibraltar is coming off a first quarter that Lipke describes as “the most difficult in our history, without a doubt.” The Hamburg-based building products manufacturer and steel processor’s operations lost $12 million as its two main markets—housing and autos—were in a free-fall, prompting it to slash its staff by 25 percent in just six months.
Mod-Pac, the small Buffalo printing company that had scratched its way back to being barely profitable late last year, suffered significant losses again in the first quarter, largely because consumers cut back on discretionary items, from candy to printed invitations.
“The extravagance seems to be off the American economy,” says Daniel G. Keane, Mod-Pac’s president and chief executive officer.
It’s not just those three companies that are looking to the future and hoping for the best. Astronics Corp. endured a worrisome drop in orders during the first quarter. Peter Gundermann, the company’s chief executive officer, thinks the drop was the result of airplane manufacturers working down their inventories as the economy weakens.
He hopes the order flow will pick up as the year goes on, just as he hopes that the slumping economy won’t force the big airlines to cancel orders for new planes that use Astronics’ lighting and cabin electronics gear.
The executives are turning to hope because they, by and large, haven’t seen concrete signs of a turnaround, beyond an anecdote here and an observation there. Lipke told analysts and investors on a conference call last week that he’s lately been noticing more cars in the parking lot when he drives by Home Depot— a sign he hopes means that consumers are starting to spend more on home improvement projects.
Economists and analysts also are expecting a turn for the better, probably sometime this summer or fall. That has executives hoping that, when the rebound comes, the jump in sales will give a nice kick to their profits, since their cost-cutting moves during the downturn have lowered their break-even points.
“We’re not just weathering the storm, we are setting the course for improved performance on a long-term basis,” says Lipke, who thinks Gibraltar’s sweeping cuts will let the company make money if auto sales are less than 12 million and housing starts are below 700,000. “I’m not saying the worst is over.”
In fact, the executives generally say they’re ready to cut more if the rebound doesn’t come. Henning Kornbrekke, Gibraltar’s chief operating officer, said the company will “relentlessly attack costs.”
Even at Greatbatch Inc., which bucked the trend by reporting higher first-quarter profits last week, CEO Thomas Hook is making a big push to cut costs by consolidating the Clarence medical products company’s manufacturing and back-office operations.
After all the pain this recession has caused, we’d better hope they’re right.
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