Energy leaves manufacturing in the red dust
Richard Mize by Richard Mize Published:
November 12, 2017 11:23 AM CDT Updated:
November 12, 2017 11:23 AM CDT
Energy's hit-and-miss recovery was enough to leave manufacturing in the red dust in this year's Oklahoma Inc. lineup of the state's leading public companies: Not one maker of anything landed anywhere near the top.
Oklahoma City-based LSB Industries Inc. bounced back from the very bottom last year, No. 35, but still rose only to No. 18.
Tulsa's AAON Inc. fell from No. 4 to No. 26.
And Orchids Paper Products Co. plummeted from No. 3 to the very bottom, No. 34.
Not that factories in Oklahoma, or manufacturers based here, swooned.
Private companies, not public, dominate Sooner State manufacturing, and production by the approximately 3,500 manufacturers actually improved slightly the past year, according to the Oklahoma Manufacturing Alliance.
Manufacturing accounted for 10 percent of the state's economic output in 2016, up from 9.55 percent the year before, and employed 8 percent of the workforce, about 135,000 people, according to the alliance.
The alliance also reported:
• Total output from manufacturing on an annual basis rose to $17.8 billion last year from $17.53 billion in 2015.
• Average compensation for a manufacturing employee rose to $65,046 from $62,549 last year, about 20 percent higher than other sectors.
However, the alliance's accomplishment's last year waned compared to 2015. In 2016, the group:
• Assisted 353 companies, up from 341 in 2015.
• Completed 384 projects with economic impact, down from 430.
• Contributed to $45.6 million in labor, materials, energy and overhead savings, down from $67.5 million.
• Contributed to $284.1 million in increased or retained sales, down from $314.8 million.
• Assisted companies with $101.9 million in capital investments, down from $115.2 million.
• Helped create 969 high-paying jobs, down from 1,492.
• Helped companies retain 910 jobs, down from 1,567.
"Workforce development is always a challenge and we are helping to meet the needs of Oklahoma companies through strong relationships with technology centers and community colleges," the alliance said in its report for 2017. "This partnership offers valuable industrial skills training in technical focus areas. That helps position our state to address the workforce skills gap that is growing among Oklahoma manufacturers."
LSB Industries Inc.
Oklahoma City-based LSB Industries, No. 18 in Oklahoma Inc., makes and sells agricultural, mining and industrial chemicals at its own facilities in Pryor, as well as Cherokee, Alabama, and El Dorado, Arkansas. It also operates a facility within a chemical company's complex in Baytown, Texas.
Trading under ticker symbol LXU on the New York Stock Exchange, LSB saw earnings per share increase 183.9 percent over the year ending June 30, and revenues increase 6.3 percent. Total return per share fell 14.5 percent over the same period.
The $293.4 million company — about 87 percent of its value a year ago — had total revenues of $411.8 million and net income of $99 million.
Second-quarter adjusted earnings nearly doubled from the same period in 2016, reflecting "enhancements we've made across our business over the past 18 months,” said Daniel Greenwell, LSB president and CEO.
Positives included the "incremental output of our El Dorado ammonia plant, which has been ramping up since entering service in May of 2016, along with strong sales volume growth for our high-density ammonium nitrate resulting from our expanded distribution strategy," he said in reporting the quarterly results.
Negatives included "headwinds caused by significant weakening in agricultural product pricing that began in June," plus unexpected downtime at Pryor and El Dorado, Greenwell said.
“These downtime events in no way change our view about the operating performance potential of the facilities," he said.
The remainder of 2017?
Greenwell said it "looks more challenging than we anticipated earlier this year due to the current ammonia pricing environment, which is lower than pricing levels seen at this time in 2016.
"We do, however, remain highly confident in our ability to operate all our plants at onstream rates of approximately 95 percent or higher. Additionally, recent sales of noncore assets have strengthened our balance sheet and provided us with greater financial flexibility, which we plan to further enhance in the coming quarters.”
AAON Inc.
Tulsa-based AAON Inc., No. 26 in Oklahoma Inc., makes semi-custom commercial and residential heating, air-conditioning and ventilation equipment, and trades as AAON on the Nasdaq Stock Market.
AAON earnings per share rose 3.2 percent over the year, and revenues rose 1.1 percent. Total return per share increased 35 percent over the same period.
The $1.9 billion company had total revenues of $383.6 million and net income of $51.1 million during the period.
At midyear, the loss of institutional memory and experience with the retirement of two longtime top executives, and the promise of industry peer certification of a new product line framed AAON's outlook for the rest of 2017.
"We have had significant changes in our manufacturing supervisory personnel," CEO Norman H. Asbjornson said. "In April, our vice president of manufacturing and Tulsa plant manager both retired after more than 60 years of combined service to the company. Mike Crews, our vice president of operations, and Hunter Mattocks, director of manufacturing, are working hard to make the transition and we have the utmost confidence in their abilities.'
"However, there is a somewhat lengthy learning curve associated with the transition process and our revenue for the first half of the year reflects the short-term challenges created by these changes in addition to the difficult labor markets. Nonetheless, our incoming order rate remains strong (with backlog rising to $83.5 million at June 30) and we expect to see excellent improvement in our revenue growth once we complete the transition process."
Asbjornson added, "While our Water-Source Heat Pump has already won industry awards for design, performance and serviceability, we are awaiting AHRI certification (Air-Conditioning, Heating, and Refrigeration Institute), which will enhance our sales and marketing program. In addition, we are currently integrating some of the cutting-edge manufacturing technology from the new line into our existing product lines with the expectation of gaining additional efficiencies."
Orchids Paper
Orchids Paper Products Co., No. 34 in Oklahoma Inc., makes bulk tissue and converts it into toilet paper and paper towels and napkins, at plants in Pryor and Barnwell, South Carolina, mostly for the private-label segment of the consumer market. Most products are sold under store brands through discount retailers.
Orchids, which trades under the ticker symbol TIS on the New York Stock Exchange, saw its earnings per share plummet 88.1 percent over the year, with revenues tumbling 14.1 percent. Total return per share fell 62.2 percent over the same period.
The $135 million company saw total revenues of $151.1 million and net income of $1.9 million during the period.
Orchids moved its front office to Brentwood, a suburb of Nashville, Tennessee, last winter.
“We expect the convenient location of our new office and the desirability of Williamson County as a place to live and work to help us attract and retain talent,” said Jeff Schoen, president and CEO. “Our new offices provide room for growth and are conveniently located close to key customers. Additionally, the Nashville area is centrally located between our principal production facilities in other states and therefore will serve as a hub for our operations.”
It's 6,700-square-foot, freshly renovated headquarters office aside, the second quarter was not pretty for Orchids.
"As expected, the second quarter was not a good one, financially speaking. Sales volumes continued at relatively low historical levels through May, and then in June the previously announced new business with its resultant revenues kicked-in," Schoen said, referring to new private-label retail orders arranged last year.
June sales made up for salves volumes lost to aggressive moves by competitors last year," he said.
"The challenges for Orchids now are to sell out the company's newly increased paper capacity, gained through the introduction of the Barnwell, South Carolina, facility, and to optimize the company's total cost structure. The cost structure will be improved through a combination of increases in capacity utilization, operating efficiencies, reassessments and realignments of costs with production requirements, and specific identified cost reduction projects."
A new state-of-the art paper machine in South Carolina, completed in June, came with a learning curve.
"Our cost of sales is too high reflecting, in part, the inefficiencies of starting up Barnwell," Schoen said. "However, we expect that as (we) sell out all of the company's existing capacity, operating costs per ton will decline significantly.
"In June we saw the average cost per unit produced decrease, however the bottom-line impact of this reduction was offset by a liquidation of older higher-cost inventory. We expect to optimize both quality and cost by the end of 2017, which will increase our competitiveness in the ultra-premium and premium product channels."
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