July/August 1992
What's hot and what's not from the perspective of equipment companies serving the scrap processing industry.
By Jeff Borsecnik
Jeff Borsecnik is assistant editor of Scrap Processing and Recycling.
Most scrap processing equipment makers reported bleak first-quarter sales, but expressed optimism about the direction of their business in a recent informal telephone survey of a cross-section of 22 manufacturers serving the recycling industry.
While the majority of the executives contacted said their firms saw sales slide with the economy, a few declared that their companies continued to sell as much equipment as they could make throughout the recession. A handful of others reported similar recession-proof success for specific products or in sales to certain market segments.
In general, however, the first quarter seems to have been dead from a recycling equipment perspective. Of those questioned, nine said first-quarter 1992 sales were weaker even than first-quarter 1991's; only five reported that this year's January-to-March period saw an improvement over the comparable months last year. Taking the comparison back to a relatively healthy 1990 results in a sadder score: Only one executive reported that his firm's first-quarter 1992 sales beat 1990's initial quarter.
Nearly all of the executives felt some of their customers were delaying purchases because of the state of the economy. Among the exceptions was John LeChette, vice president of sales for Montone Trailer Co. Inc. (Dillon, S.C.)—which specializes in roll-off chassis and dump trailers for the scrap industry—who suggested that his customers are already looking forward to a better year and want to be ready to move material.
The only other respondent not reporting noticeable customer delays said his firm's buyers were not delaying purchases of the company's products, but were buying in smaller quantities. Another respondent, Thomas A. Wendt, president of Wendt Corp. (Tonawanda, N.Y.)—manufacturer of a wide range of processing systems—admitted that some of his company's customers were delaying buys, but in "ever-lessening" numbers.
A Turnaround in Sight?
When asked how successful business was at the March convention of the Institute of Scrap Recycling Industries, four company representatives used terms such as "excellent" or "very good," while an equal number put it at the opposite end of the scale. Nevertheless, the bulk of the equipment firms that exhibited at the convention reported that there was considerable customer interest, but not necessarily in terms of actual sales. In addition, several noted that the "feel" of business at the exposition was not as bad as market conditions had led them to expect.
Furthermore, when interviewed several weeks into the second quarter, most of the company officials figured business was heading in the right direction. Sales appeared to have improved in April, according to 14 of the executives. Most remained cautious, however, and several made comments like "more talk, little change" and "sporadic but flat." None reported a market headed down, but two alluded to a stall in a temporary upswing.
About 10 of those interviewed figured their sales totals for the first half of the year will be around the same as for the first half of last year, and the remainder split evenly between predicting they would beat or fall behind last year's first half.
And the second half of the year? "Who knows?" answered John Sacco, president of Sierra International Machinery (Bakersfield, Calif.)—a manufacturer of cranes, balers, shears, and other processing equipment and a subsidiary of a scrap processing firm—voicing a widely held uncertainty. "It could be excellent, but it could be miserable. My opinion is it might be O.K., but I'm cautious."
Other executives generally used terms like "hopeful," "realistically optimistic," and "guardedly optimistic" in describing their guesses for the balance of the year. When pressed for real predictions, about three-fourths hazarded that the last two quarters would likely see better sales than the first two, and most of the rest said they expected the second half to be much better. None predicted the period to be worse, but a few said their sales figures would probably remain level.
The Banking Connection
Although interest rates have dropped, only one respondent described a correlation between interest rates and sales figures: Buck Hughes, vice president of marketing for Harris Group, a Minneapolis-based maker of balers, shears, cranes, and other processing equipment. Hughes said he had expected interest rates to provide a bigger boost, but, he added, "We are currently quoting a tremendous amount of equipment, and I think that has to do with lower interest rates."
On the other hand, about three-fourths of those interviewed said improved rates haven't boosted sales, and several mentioned that the "credit crunch" has hurt their sales. "We've lost $1.5 million in machine sales in the last two months because of a lack of financing!" said Sacco. Another survey respondent, Bob Sweeney, vice president of Newell Industries Inc. (San Antonio)—a manufacturer of shredding systems, separators, and other equipment—called the credit crunch a "real concern for lots of our scrap processing customers, though not so much with the steel mills and big processors." He said, however, that it's difficult to say whether this made a perceptible difference in sales. Sweeney did note that "some folks have had new difficulties despite long-term bank relationships," producing "lots of anguish" at those firms.
To counteract the apparent scarcity of financing, manufacturers such as MAC Corp./Saturn Shredders (Grand Prairie, Texas) are helping their scrap industry customers find financing, according to Norm Kramer, assistant to the president at MAC, which manufactures balers, car flatteners, and shredders.
Most of those interviewed, however, did not report suffering from customer credit problems, and one executive even said that credit has seemed easier to come by for his buyers. A few noted that money always seems to be tight for scrap equipment purchases, with others pointing out that their customers typically pay cash, especially for less costly equipment.
Equipment makers were also asked whether some of their customers saw the weak economy as a good time to invest in equipment. About half agreed that at least some of their customers believe it is, noting that buyers falling in this category are typically "well financed" or "real solid" firms that want to be ready for the next upswing in business and wish to take advantage of low prices and quick delivery.
In addition, customers are keenly aware of the heightened level of competition between manufacturers fighting for a diminished number of buyers and they try to take advantage of the fact, some said. "One of our biggest sales of 1991 was for that reason," admitted Wendt. The down market, he said, means customers are "in a position to negotiate their best price because they know the manufacturers need work for their plants."
What Are They Buying?
Though processors seem to be watching their dollars carefully, the survey revealed that some equipment remains very much in demand.
One apparent cheery segment has been equipment to process copper, which has maintained relatively stable prices, and aluminum, which seems to have rebounded from the weak months seen in 1991. For example, Al-jon Inc.'s United Division (Topeka, Kan.), which manufactures furnaces for copper and aluminum reclamation, has managed to maintain a backlog of orders throughout the recession, according to Kelly Pettit, the division's president.
In addition, equipment designed primarily to perform community waste management services have enjoyed a little better success than machinery for upgrading recyclable commodities, said Kendig K. Kneen, president of Al-jon Inc. (Ottumwa, Iowa), which makes a wide range of processing equipment. For example, tire-shredding machinery has "a mystical charm right now," notes Kramer, whose sentiments were echoed by several other executives marketing tire-processing equipment. Equipment sold to process old newspapers, glass, and plastics, especially that collected in municipal recycling programs, reportedly also remains in demand.
Separation equipment like plastic-sorting systems and eddy current separators used to salvage nonferrous metals were also cited as remaining relatively strong in the weak market.
A few of the respondents said their companies have been buoyed throughout the recession by a few hot, new products, especially items that are perceived as clearly cutting operating costs. Apparently, processors remain open to equipment investments that will improve their profitability.
Several of the executives interviewed also named trends working in their favor, including the following:
- the continued growth of minimills, which has pushed demand for more shredding plants,
- changes in bridge laws and state enforcement, which have encouraged scrap handlers to purchase new, longer trailers, and
- a need for "cleaner" running equipment to meet environmental obligations. A handful of respondents noted that the length of the recession has helped lengthen the lists of equipment ready for replacement. Another trend that reportedly affects some of the firms is consolidation in the industry, which can mean fewer buyers, but it can also mean that some small facilities gain greater access to capital and improved ability to monitor the costs of operating dated equipment.
When asked if their customers sometimes complain they must delay purchases of processing equipment because of financial obligations related to environmental requirements, about half agreed, with several noting specific examples. Possibly even more threatening than actual environmental expenditures is the "environmental uncertainty" factor—the processor's fear that he may have to spend unknown amounts on such problems in the future—noted Curt Helmen, inside sales manager for LaBounty Manufacturing Inc. (Two Harbors, Minn.), which manufactures mobile shears, grapples, and other attachments.
Among the items listed as hardest hit by the recession included large-ticket equipment and parts, such as knives and wear plates, that are dependent on the volume of processing. Adding to their economy-related woes, said several company representatives, are a flood of new competitors at a time when there are fewer buyers.
In response to a question on whether their customers look for different qualities in the equipment they buy during a recession, 13 of the executives said their buyers do seek something different—most often a better price (although several respondents said sales to the scrap processing industry are always quite price-sensitive.) A few noted, however, that their scrap customers "have found out that they can spend money to save money," as LeChette puts it. His customers, for example, now invest in steel-belted radials where they used to buy cheaper tires.
Other qualities currently sought after include low operating costs, including inexpensive maintenance and automated or one-man operation to save labor costs, and versatility—buyers want equipment they know they can make money with immediately.
Some customers buy smaller equipment or tools with fewer added features in a poor business climate, according to a handful of the executives, who said scrap recyclers will buy only what they need right now, rather than expecting to "grow into" equipment as they might in brighter times. During a tight economy, buyers look to more exactly fit equipment to their needs, added Sacco.
About a third of the equipment representatives interviewed, however, said their buyers simply get the equipment they need to do the job, regardless of the economy. Sometimes because there's just no alternative.
For manufacturers serving industries besides recycling, sales to scrap recyclers were often noted as being among the mostly deeply affected by the recession, although construction and logging segments were reported to be suffering as much or more. Large-item sales to the public sector were also reported down. Sales markets named as suffering less than the scrap industry included hazardous waste processors, material recovery facilities, and environmental contractors. For some firms, these segments clearly help even out scrap market swings. Still, a few executives noted that their sales to the scrap industry had actually helped buoy their businesses, which had suffered more in other sectors.
Adapting to Difficult Times
All but one of those questioned answered without hesitation that they are receiving many requests for quotes. "If I were paid per quote, I'd be a millionaire," said LeChette, who estimated that about 45 percent of the quote requests his firm is handling are serious. In fact, more than half of the respondents said they felt most of the requests were "serious." Several noted a strong response rate to advertising campaigns, although they tempered this by noting a lack of "solid" activity. A handful of others suggested their quote action is predominantly window shopping.
Do the equipment companies change the way they prepare quotes when times are tough? Most said "no," but several noted that they shave prices, trimming margins. "When the market is soft, you have to be sharper. You have to do everything better," said Al Gedgaudas, manager of resource recovery equipment for Eriez Magnetics (Erie, Pa.), a firm whose scrap processing products include magnetic separators and vibratory feeders. This means, he said, "more complex proposals, more site visits, and maybe more testing."
Customers have more time to spend studying and comparing equipment when business is slow, noted several executives. Illustrating this, Pettit pointed out how different equipment sales are today compared to his first sales call, in 1972, when he entered a prospective customer's office to try to sell furnaces and was simply told, "Write up an order for two of them, I don't have time to talk to you. Let me know when you're done."
Only a few of the companies agreed that they increase emphasis on parts and service during periods of weak sales, but one said his firm "goes after" the parts business when new equipment sales are off. A few others said they increase their parts/service efforts to help their customers run as efficiently as possible, helping them save on maintenance and operating costs. The bulk of the respondents simply said service is always important.
Few reportedly take in more trade-in equipment during a sluggish economy, but about a half-dozen said they have more used equipment on hand or are selling more used/reconditioned equipment. According to Gedgaudas, scrap processors always buy more used equipment than all of the other industries his firm works with combined. Dick Longo, vice president of O.S. Walker Co. Inc. (Worcester, Mass.)—a manufacturer of lifting magnets, pulley and drum magnets, and eddy current separators—noted that the market is particularly "hot" for used magnets, with processors considering magnets they might not in a more robust economy.
The Pulse of the Market
While half of the survey respondents agreed that their customers believe the end of the recession is near, several executives said the recession may just slowly taper off and not actually end in the current calendar year.
"Our biggest enemy is the news," complained LeChette. "The news projects that things are bad and people begin to believe it. The best thing to do is watch cartoons in the morning, don't watch the news." His firm, he pointed out, has "almost a three-month backlog" and some of its competitors also seem to be holding their own, so the "all bad" image is false.
More moderately, some suggested that "almost all of our customers think we've passed the worst," as Danny James, sales manager for Bes Pac (Easley, S.C.), put it. Others agreed that, at worst, the market has flattened. Nevertheless, several noted that a strong disparity exists in the economic health of different parts of the United States , and one of the executives interviewed mentioned that his scrap industry customers are less optimistic than his clients in other industries.
Just under a quarter of the group was even less optimistic, noting that many of their customers remain skeptical of any upswing on the horizon. "People seemed more optimistic last year," reported David R. Butler, area sales manager for Akerman Inc. (Waukesha, Wis.), a crane and attachment manufacturer. "This year they're just not buying, they're just waiting for something to happen."
Soon A Burst?
Will equipment sellers experience a rapid upswing in business once their processing customers perceive that the recession is over? About half of those interviewed agreed that they would, with another third of the whole group predicting a more gradual pickup.
Several said they expect a spurt in business, directly following any jumps in commodity prices. "We're preparing to double our business once commodity prices rise. ... If can prices doubled tomorrow, we'd get orders immediately," said Richard Brunson, director of marketing for Recycling Equipment Manufacturing (Spokane, Wash.), which makes a variety of equipment for processing aluminum and steel cans, plastic and glass bottles, and paper scrap.
On the other hand, said Gedgaudas, one of the group expecting a more moderate pace of improvement, "I don't think we're going to wake up some morning and see everybody ready to go." Others agreed, pointing out that the long recession has discouraged risk-taking. "I think everyone will stop and take a deep breath, thankful that they made it through, and then make cautious decisions," said Sacco.
While some may wish for an immediate return to more profitable business conditions, a few survey respondents suggested that gradual growth may be better for long-term business than a sudden upswing. As Vern Schueler, manager of marketing services for the Insley Division of Badger Equipment Co. (Winona, Minn.)—a crane maker—pointed out, "Booms are short lived." •
What's hot and what's not from the perspective of equipment companies serving the scrap processing industry.