Google PlusLinkedINYouTube

July 14, 2010 Conference Call – Transcript

Copyright 2010 Roll Call, Inc.
All Rights Reserved.
Copyright 2010 CCBN, Inc.
All Rights Reserved.
FD (Fair Disclosure) Wire

July 14, 2010 Wednesday

TRANSCRIPT: 071410a3223643.743
LENGTH: 7512 words
HEADLINE: Q2 2010 ARTS WAY MFG INC Earnings Conference Call – Final

Corporate Participants

* Jim Drewitz Art’s Way Manufacturing Co., Inc. – IR * J. Ward McConnell Art’s Way Manu-facturing Co., Inc. – Executive Chairman * Dan Palmer Art’s Way Manufacturing Co., Inc. – Presi-dent of Art’s Way Scientific — Buildings for Science * Pat O’Neill Art’s Way Manufacturing Co., Inc. – GM of Vessels

Conference Call Participants

* Joe Dancy LSGI Advisors – Analyst * Sam Rebotsky SER Asset Management – Analyst * Roger Miller Foggy Days – Analyst


OPERATOR: Good morning, ladies and gentlemen, today is Wednesday, July 14, 2010, and welcome to the Art’s Way Manufacturing Co. second-quarter and six-month financial results confe-rence call. At this time all participants are in a listen-only mode. (Operator Instructions). Your call leaders for today’s call are Jim Drewitz, Investor and Press Relations Representative; J. Ward McConnell, Jr., Executive Chairman of the Board of Directors. I would now like to turn the call over to Mr. Jim Drewitz. Mr. Drewitz, you may begin.

JIM DREWITZ, IR, ART’S WAY MANUFACTURING CO., INC.: Thank you very much, Erica. Good morning, all. We are indeed joined by Ward McConnell this morning. In addition to that, we are also joined today by Pat O’Neill, who is General Manager on Art’s Way Vessels, and Dan Palmer, Vice President — or actually President of Art’s Way Scientific Buildings for Science. Both Pat and Dan will be available for comments and questions and answers, so we welcome you to ask both of these gentlemen.
With that done I would like to draw your attention to — except for historical information con-tained here in, the statements in this conference call are forward-looking and made pursuant to the Safe Harbor provisions as outlined in the Private Securities Litigation Reform Act of 1995. For-ward-looking statements involve known and unknown risks and uncertainties which may cause Art’s Way Manufacturing’s actual results in future periods to differ materially from forecasted results.

Those risks include, among other things — the loss of market share through competition or oth-erwise; the introduction of competing technologies by other companies; new governmental safety, health and environmental regulations which could require Art’s Way Manufacturing to make signif-icant capital expenditures.

The forward-looking statements included in this conference call are only made as of the date of this call and Art’s Way Manufacturing undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

Important factors that could cause actual results to differ materially from the expectations re-flected in the forward-looking statements include, but are not limited to, factors described under the risk factors caption in the Company’s annual report on Form 10-K filed with the Securities and Ex-change Commission. With that completed, I would like to turn the call over to Mr. McConnell. Mr. McConnell, it’s all yours, sir.

J. WARD MCCONNELL, EXECUTIVE CHAIRMAN, ART’S WAY MANUFACTURING CO., INC.: Good morning, ladies and gentlemen. Thank you a lot for joining our call again at this time; I hope you’ve been on with us before. I’ll start off with looking at the financials for the end of the first six months. As you’ve probably seen the 10-Q, our sales are down a little bit from year ago, but we’ve had a very successful quarter and have in our acquisitions efforts. And while our earnings are up a little bit that was encouraging based on the smaller sales.

We’re very happy to tell you — I’m going to go forward here, but I’m happy to tell you our sales have caught up with last year now, and that going forward we have a higher backlog than we had last year at this time. So the year is progressing quite nicely. Our cash flow has been good. We’ve had an awful lot of customer deposits, which we are now shipping against very hard here in June and July and that’s dropping significantly while our borrowings have not gone up significantly.

This morning our short-term debt at the bank is about $1.6 million, which is not very bad for us because we have some cash flow, been able to purchase the Roda product line in January and then the product line coming from M&W a year in May.
Also in the last quarter, very significant to us is the fact that we were able to find a facility which we like very much and purchased for $1.3 million from really 27 acres of land, 190,000 square foot building and it’s all clear and we’re in the process of moving in as I speak. With all of the product lines we’ve gathered up in the recent years, we ran out of room in Armstrong. And so we had to find more space or quit growing.

The primary decline of the sales in the six months is the OEM business. Our OEM business is forage blowers. We sell to Case and we sell to New Holland and a company called H&S. Two years ago there was a shortage of them. Everybody wanted them at the end of the season and there weren’t any available anywhere and the tendency was for everybody to over order in 2009.
And they did over order significantly and when they looked at their inventory going forward to 2010, they found that their inventories were way up and so their purchases from us went way down. I don’t know if — I don’t really know if it’s a significant trend — it’s certainly not a trend the way it happened, but is it — if we averaged a couple of beers together is it a trend? I don’t think it would be. I think they’ll be back again next year with some orders.

I have Dan Palmer from Scientific — the President of Scientific on with us this morning and I’d like to have him give us a small report and then I’ll come back to Pat O’Neill.

DAN PALMER, PRESIDENT OF ART’S WAY SCIENTIFIC — BUILDINGS FOR SCIENCE, ART’S WAY MANUFACTURING CO., INC.: Great. Good morning. On this side of the business, at Art’s Way Scientific, market conditions have softened a little. We’ve seen some negative impact with regards to the stimulus package money not being funded to individual institutions that we expected would have funding.

However, it’s been very good for us in the fact that these investigators and institutions got the ideas together to formulate their vivarium space and their laboratory space and the programs and they want to do this research like crazy. So even if they’re not funded, they’re now maybe delayed, but are going about the business of finding their own funding to fund the research.

So we didn’t see the huge impact that I expected to see. We still have these folks on our final re-port managing 140 leads, 21 institutions that like what we do and would like to use our buildings in their biomedical research. So from a recording standpoint, we’re still pretty strong. From a backlog standpoint, we’ve got a few big projects that we have recently shipped and are completing during the summer and then a few smaller ones that are in the manufacturing plan right now.

Most exciting to our division is that we’ve had the opportunity to quote some lease packages to Veterans Administration hospitals and to people who need building space while renovation is taking place to house scientific experiments or laboratory animals. We’ve been able to put together a couple of profitable short-term rental packages for rodent space, housing laboratory mice basically, for a one-, two- or three-year period, put those out there and have them be funded by the rents that are coming in.

So another good place for us to get some short-term types of business. I was also pleased to see that we had at a recent World Pork Expo on the agricultural building side of the business, some 18 inquiries and quotations for modular farrowing buildings particularly. It appears that the swine herds are being reconstituted and farmers are again farrowing more sows and so the pig population needs to go up and they need space for those.

So we hope to see the same thing with the upcoming World Dairy Expo that we display at. So overall, from a standpoint of this division, it’s not as strong and the backlog is not as big as I would like it to be, but I think that the short-term closing and the long-term particular look really good. I guess I should also add that we’ve got some leads for some foreign business in developing countries. That’s also pretty exciting and new opportunities for our division.

J. WARD MCCONNELL: Thank you, Dan.

DAN PALMER: Thank you.

J. WARD MCCONNELL: That’s good. Pat, tell us about Vessels.

PAT O’NEILL, GM OF VESSELS, ART’S WAY MANUFACTURING CO., INC.: Well, the good news is that I can talk about is that I can confidently say that we’re shipping a pretty good product right now. The quality has improved dramatically from a year ago. And we’re actually start-ing to hit some ship dates that we’re promising which is also a key to the success of this business. So from that standpoint, we know that the product going out the door is a quality product that will last. And again, we’re hitting the expected dates that the customers are asking us to hit.

We are making consistent progress and we tend to prove monthly as well as quarterly results the in the first half of the year were stated and our backlog over the next 90 to 120 days far exceeds what we did in the first half of the year. So we feel good about that and we think it’s going to con-tinue.

Our goal has been and still continues to be to get a strong base of business from customers that give us repeat orders for like sized tanks. We like doing tanks that we’ve made before. We’ve done tremendous improvement in the plant in fixturing of heads and shelves and different things that simplify the process and obviously reduce the cost of the product. We will continue to do that.

We have a plant manager in place that has made a dramatic improvement in the back and as a result of all of those things, we’ve had to add a number of production people, over the last year we probably tripled the size of our production force in the back just to reflect the incoming orders. So we feel very confident going forward.

We’ve got a good base of customers, they’re relying on us now as their primary supplier of steel vessels and we get the occasional large order that might be a single tank for a pretty good operation or a pretty good project and we like those as well because we can do a little bit better on margins with larger vessels.

Other than that, we feel very good going forward. Quote activity has been extremely strong. If we hit $1 million a month in quotes we think that’s a great month and we certainly did that in June and hopefully some of those will reflect in orders in the coming months and quarters. If you have any questions, I’ll be around after this is done.

J. WARD MCCONNELL: Thank you, Pat. I appreciate you both telling us a little bit about your business. If you would, I’d like to open it up for questions at this time. I think — Joe must be on. Are you on, Joe?

JIM DREWITZ: All right, Erica, we are open to questions, so go ahead and proceed.

Questions and Answers
OPERATOR: (Operator Instructions). Joe Dancy, LSGI Advisors.


J. WARD MCCONNELL: Morning, Joe.

JOE DANCY: I was curious on the — are you doing any new hiring? I know — I think Pat just mentioned they’ve hired some staff there at his facilities as they ramp up. But are you still hiring? I know at your new facility there in Iowa that you bought you had a job fair and apparently got some really good looking applicants. How’s it all going as far as getting the personnel in place that you need?

J. WARD MCCONNELL: Well, the job fair we had at West Union was amazing. We had 300 people. At some point in time we need about 40. We currently only have three there. We’re moving into the building now. Overall our total employment is up 22 last Friday over a week — over a year ago, and we aren’t having a lot of trouble and most of the increase — our auger division is up some because our sales are up dramatically in that auger division. So I think to answer your question, we are not having labor shortages.

JOE DANCY: Okay. I guess on the augers too, I noticed the company that went bankrupt up there in I guess South Dakota, some Canadian firm bought them out. And I think — are you having any problems with competition from their new operation? Apparently they took that bankrupt auger firm and essentially have restarted that facility apparently from what I’ve read. Is there any competi-tion there or issues?

J. WARD MCCONNELL: We had some competition for employees. They came — we had hired the former company’s employees which went out of business in October of ’08. Our first 10 em-ployees, I think every one of them came from ex-employees because they came to us and asked us to start it up again. That’s how we got going over there. And then they’ve hired those back primarily and we’ve replaced and so on, but no problem whatsoever replacing.

In fact, it was easy and we think we upgraded because we got a younger group of employees. I hope that’s true. I do know our sales — we’ve shipped considerably more already this year than we shipped last year. So it’s — and we still have a good backlog there.

Competition, yes, I think they’re going to be competition. But I also think that our distribution is a little different than where the former company was. I’ve talked to you before about the circles around the plant. I think those people are thankful that they had product up from us for a couple of years.

Just as an interesting sidelight — the Company in Canada is owned by a Russian Company. I don’t know how much that plays into it, if anything. Also, we had our orders written before that thing was closed for this year and we haven’t lost — we’ve lost a couple of orders that we would have lost anyhow. I don’t think anything to do with the company from Canada. But — and then in-teresting too is that the state of South Dakota financed them. We thought that was interesting.
JOE DANCY: Oh, okay.

J. WARD MCCONNELL: We probably will be able to see some more of them, but we shipped a truckload of augers out east here, which the former company had never done. So our distribution is pretty broad.

JOE DANCY: Okay. I missed Dan’s comment on the Scientific on the backlog and I think he was talking a little bit about the backlog over there. Can you either repeat that or just tell me — have we sort of missed the stimulus program or is some of that still in the pipeline, or exactly — I’ve been waiting to see the big announcement when all of the Obama money is going to roll into labs and I haven’t seen anything anywhere. I’m just curious what’s going on.

DAN PALMER: Yes, Joe, it’s been incredibly disappointing to the researchers who are trying to fund cutting edge research. The stimulus package was put out there and there was a lot of competi-tion that went on to get people to bring grant proposals in and they brought them in and they brought 35,000 or something like that in when NCR is typically dealing with 3,000 or 4,000 in a year. So we (multiple speakers).

J. WARD MCCONNELL: I think — correct me, Dan, but I believe they decided they’re not going to get that money. They all waited last year for it to come and it didn’t come. They’re kind of settling back into their old methods of raising the money they needed for these projects and the projects are beginning to move along now.

DAN PALMER: Yes, yes, but at a slower pace. I think what we see is a down size a little. When they went in for the big grant they were swinging for the fence. They wanted a home run. But now they’re coming back to downsize and right size the buildings for the programs and they’re still engaged and interested, but they’re delayed because they’ve got to go and find the money and they’re trying to do that from private sources.

We still have a deadline that we’re working towards. We’ve been told that some of the money is released and it’s been released to major institutions for site built construction of vivarium space. But September, we’re now looking forward to September when they’re supposed to have closed this all up. And a number of our leads are waiting for September as well.
JOE DANCY: Okay. Do you have anything in your factory right now that you’re working on?

DAN PALMER: Yes, absolutely. We have just recently shipped a large order to the National Cancer Institute, our second building there. 6,000 square feet, 2,000 — two-storied laboratory facili-ty. We’ve got guys on site working on that. We have 10 agricultural style buildings for a research complex at the University of Georgia in Athens, Georgia. We have the last two of those pieces here in the plant yet, they’re scheduled to ship on the 19th of the month.

We have completed a small agricultural building for Eastern Kentucky University in Richmond, that’s on the lot waiting for them to get their site work done and we’ll be shipping that. Wake Forest Primate Center has contracted with us for two nonhuman primate facilities for African green mon-keys, for a colony of those, and those are in the manufacturing facility right now.

In addition to that, we have some — we’re closing on some significant, but smaller, clients — jobs for — one for a pharmaceutical and the other for an electrical components manufacturing facility.


DAN PALMER: Quality control laboratory for a major electrical components company. So we — and then as I mentioned, the Veterans Administration Hospital, we have three bids in for leased and rental types of units to those institutions.
JOE DANCY: It sounds like you have a pretty diversified base, which is nice to hear. I forgot all about this, in the press release you had some cost overruns a year ago on some of your projects. Have you sort of addressed whatever the issue was? Are you having any cost overrun issues now with any of your stuff that’s going out the door?

DAN PALMER: A difficult part of these projects sometimes is trying to manage the labor re-sources on a facility that’s in Maryland or in Georgia. And so for this particular — these particular larger jobs, we’re using more subcontracted labor than we have in the past. For instance, which is put out to bid for a certain scope of work. So where we had 15 or 18 people at the first National Cancer Institute job, we had seven plus a hefty number of subcontract specialists doing electrical, plumbing, HVAC final types of work.

So the process improvement part of that is that we have had define — be better about defining what we want people to do for us. And though struggles continue with maybe this element of this connection falling through the cracks, we’re getting better every day at that defining what we want people to do and getting a price to do that.

So cost control, first of all. That’s where we’re using our software system monthly reviews of cost content, better shop floor controls and all those types of things. That’s the first step. Second is working with an engineering firm that we really like and we’re really comfortable with. We specify light components.

Our purchasing guy has established a database of the components that we can buy best and that we specify in every building rather than letting architects put a different light fixture in every type of building that we do. So those are internal improvements. But nevertheless, the jury is still out on a couple of projects that we’ve tried tightening our process on and we’ll see at the end of those projects just how well we executed.

JOE DANCY: Okay. Interesting. A on the Vessels group, I know Pat mentioned they were manufacturing some standardized, I think vessels, or tanks for a continuous customer. And I forget — it might be proprietary so you may not be able to tell me, but there’s a certain sector of industry that you’re targeting to do that repeat business? Or like I say, if it’s confidential, I understand.

PAT O’NEILL: No, not at all. It is primarily the water treatment industry and more specifically the high purity water industry. Recently we just got an order for 60 identical tanks which is some-what of a continuous order that’s coming in on a fairly regular basis, so with these 60 we’ve probably made 180 of those vessels and by doing them over and over, obviously we can get a little better at it and reduce costs and make more money on it. But it’s primarily the water treatment industry that you get the vanilla type takes that have the same openings and same fittings and same sizes.
JOE DANCY: So water quality, is that like conditioners?

PAT O’NEILL: They’re used for anything from water softeners, water filters, these particular ones, the number that I just stated is for high quality DI water. It contains mixed bed resins that take everything out of the water for high purity manufacturing as well as dialysis and that type of thing.

JOE DANCY: Oh, okay, interesting. So it’s industrial, the facilities that they’re targeting, not residential or anything. Interesting, that’s all the questions I have, Ward. It sounds like you’re mov-ing on. I noticed — I think this is the fifth quarter in a row at least we posted a positive bottom-line earnings per share, which is sort of nice to have the diversity when vessels seem to be going and equipment is all done a little bit.

At least everybody — the boat doesn’t tip over. So it’s nice to see the consistency in earnings going forward, especially over the last year and a half which has been such a bad economic time for most manufacturers. I appreciate your taking my question.

J. WARD MCCONNELL: Thank you, Joe. Any other questions?

OPERATOR: Sam Rebotsky, SER Asset Management.

SAM REBOTSKY, ANALYST, SER ASSET MANAGEMENT: Hi, good morning, Ward, Dan and Pat. It’s nice to see profits. Now maybe the backlog, which was $17.450 million and it’s now $13.639 million, the decrease of $3.811 million and with the sales of $6.8 million, did we close any deals in the current quarter? I mean, to add to the backlog? Were there any items that went into the backlog that weren’t in at the end of the previous quarter?

J. WARD MCCONNELL: I’m sure we did. The backlog — at the same date a year ago was $10.5 million, and this year is $13.6 million.

SAM REBOTSKY: I’m referring to the February quarter.

J. WARD MCCONNELL: You’re referring to the quarter; I don’t have those numbers in front of me.

SAM REBOTSKY: Okay, okay. It appears that — the amount of the ability to close I guess re-lated to the potential stimulus which didn’t come in and the other in the agricultural area that you previously sold. So I guess does it appear going forward — are there more bids out there? I think you used a number of $50 million at one point or $60 million of the bids you had out there, is that a similar number or is still currently, or –?

J. WARD MCCONNELL: Well, I know the number of projects is similar or slightly more. But, Dan, can you answer that?

DAN PALMER: Yes, it’s — at this point the value of those will be about $67 million.


DAN PALMER: $67.6 million, I believe they are. That’s the sum total of the forecast amount for those 140 leads that I talked about, which is everything from a $69,000 agricultural building up to a $4 million mustard gas destruction plant facility for Bechtel.


SAM REBOTSKY: So basically we would say that there may be a little bit increase in these quotes that are out there. And is it fair to say that nothing that you’ve been — that’s been the quotes have closed during this quarter where a competitor may have gotten the business, so to say?

DAN PALMER: I don’t hear about a lot of competitors getting the business. We did, in fact, lose one job at a facility in Colorado, a government job that got into a very competitive negotiating process, and whomever got it had to common lower than we would go. There are some modular builders out there who are trying to cross industries from what I saw of the facility, the cost and the componentry that was going to be put into the facility in a debrief that I did what these people.

I’m concerned about the ability for that company to perform according to requirements for the kind of work that’s going on. So I would say, yes, we’ve lost one or two, but those are losses for — on a dollar award, price being the primary consideration and we don’t want those. We want a shot at all of them, but we don’t want to get them all if there’s no margin in it for us.

SAM REBOTSKY: Well, I’m behind you 100%. You don’t need sales that lose money.

DAN PALMER: Absolutely, but I would say that our closures have been on the small stuff, $150,000, $200,000 things that are coming in. Most of the stimulus package stuff was larger vo-lumes. And as people regroup, it’s taking time. And so I feel comfortable with the amount of leads, actually the numbers of leads are up 18 that we’re managing, accounts that we’re managing right now. The number is up a little bit from 60 to 67. The quality of those will remain to be seen as these institutions find money from other sources.

SAM REBOTSKY: And your cost — my recollection is do you hedge or don’t you hedge as far as costs relative to jobs that you have, as far as –?

DAN PALMER: We have to hedge. We have to put in contingencies. Our costing models get better with the collection of the data that we can get from our manufacturing software, which was implemented here last August, I believe it was. We can run bills of materials and product work or-ders and track to individual areas of the manufacturing plant, i.e. how much did we forecast for the electrical components in this job versus how are we doing and how did we end up at the end of the project. So does cost overruns can be with regards to things that are unanticipated or warranty types of issues.


DAN PALMER: I think we’re (multiple speakers).

J. WARD MCCONNELL: (multiple speakers) mentioned the ag side of this — we bought this Roda line back in January. We still have not manufactured any of those manure spreaders. We have a backlog in that of around 600,000, but we have our first production run of that coming now which is going to be significantly in this fiscal year yet. We haven’t sold a lot of those. We’ve sold some, but the potential is a seasonal thing. It’s more popular in the fall of the year when cattle go into con-finement. And I think — I see the tail end of our year stronger than it’s been historically.

We also have more beet harvesters sold this year than we have in prior years, which is in this quarter we’re in now. So we’re going to — I think, going forward we’re going to have a stronger year than last year. I didn’t think that the last quarter we talked I thought we’d be even, but I changed that because business has been pretty good on the ag side, so I pass that along. I think it’s going to be better.

SAM REBOTSKY: That sounds good. That sounds good. Now the Alamo acquisition, is there a — the backlog of that is that was closed after the May 31. Is that a significant number?

J. WARD MCCONNELL: Well, there’s no backlog to that. There’s a spare parts business, most of what we bought is spare parts. About half of what we bought is spare parts. The other half is hay balers, which I think will — we can have an opportunity to sell off as well. It’s a product line that’s been much, much larger than it currently is. The M&W Gear Co. is a very well-known name in the industry and Alamo bought them some years ago and this is a small divestiture from them.

But I think it’s going to — it’s not going to impact us very much this year, but it could impact us going forward. t gives us another product — gave us some more dealers and we’re kind of rounding out a line that fits the clientele we sell to. So — that our dealers are for. And it gives the dealers more opportunity to buy more products from us. So I think we’re poised — these product lines really have not had an opportunity. We haven’t had them long enough to really exploit their potentials. I think we’ll get significant growth out of them going forward.

SAM REBOTSKY: It’s kind of positive that your eyes are open and you see little clamp-on ac-quisitions that sort of increase your size of business. Do you see any more of these around? Because maybe the difficulty some of these people have had, although Alamo is rather a quality big strong Company, they just decide it was too small for them? Are there other things that you’re looking at now that we might make an acquisition in the future?

J. WARD MCCONNELL: Not since Monday.

SAM REBOTSKY: Not since Monday? There you go. Well, I’m very pleased on what you’re doing. I’m pleased with your forward-looking statements and hopefully there’s some — loosened the strings — some money comes into play that people could feel more comfortable in spending. Good luck.


OPERATOR: [Roger Miller], [Foggy Days].

ROGER MILLER, ANALYST, FOGGY DAYS: Well, I have a couple questions here. Back to the agricultural dealers, about how many dealers percentagewise have you picked up? Would you have any idea? With these acquisitions from the augers, maybe you’re speculating on the manure spreaders and now the hay blowers?

J. WARD MCCONNELL: How many dealers would we have picked up?

ROGER MILLER: Yes, in the last year or two years? In other words, where I’m going is — are you managing to reach out to dealers that you couldn’t sell before? And maybe expanding your area of sales and service and parts?

J. WARD MCCONNELL: Absolutely. We have named a lot of dealers that don’t do very much business with us that have been around forever. We’re actually in the process of shrinking that. But yes, the Miller Pro product line, we picked up an awful lot of dealers in Wisconsin and up in North-east New York, Pennsylvania in the dairy belt.

And I know, for example, the M&W Hay Balers were pretty popular in Kentucky. The horse farms kind of fit that. There are 14,000 hay balers a year sold in North America, back off in the US. How many dealers? I would think we’re probably dealing with 50 dealers more than we were be-fore, probably more on a parts basis.

We list something like 800 dealers and I think we’ve cut it back — we’re trying to cut it back to around 500 more active dealers. There’s an awful lot of consolidation going on in the dealerships around America. There’s a Company out of Fargo, North Dakota, that currently has 73 stores in the central part of the United States.

The consolidation is a shift going on with ag dealers. It appears to us at least that there are going to be more short line dealers, those who handle our type products. They used to be handled by the John Deere’s of the world, but John Deere doesn’t like that anymore. They’re trying to get purity.

In analyzing our dealers, our top 10 dealers, the ones that really are doing the most business with us are those, they’re short line dealers. Those who — our product is important to them. That’s true both in sugar beet harvesters, it’s true in the grinder mixer business. There’s a shift going on that we’ve got to follow in trend or we’re going to be in trouble. We’re not going to survive selling to John Deere dealers.

ROGER MILLER: Well, I understand this battle of the OEMs versus the independents. It’s al-ways appeared to me that the profits in the independents, as far as bottom line —

J. WARD MCCONNELL: The OEM business — I’ve never been a very big advocate of it. It was there when I got there and we continue with this product with them, but I call it the Wal-Mart syndrome. We’ve had some negotiations with John Deere and so on. They beat you up so bad there’s no profit left. So I think from our point of view we have to look at these short liners and help them grow.

ROGER MILLER: And with these acquisitions going back to the dealers again, you said you had maybe 500 active, picking up hay balers, which is new, you don’t know the results there yet of how many dealers you’ll get. But I would assume that you’ve made some inroads into picking up some strong dealers that maybe you didn’t sell before because now you’ve got augers and manure spreaders which are due to ship. Is that correct?

J. WARD MCCONNELL: Or due to make.

ROGER MILLER: Do to make?


ROGER MILLER: In other words, I’m asking you is there a demand for your product out there with new dealers that you’re not doing business with?

J. WARD MCCONNELL: Absolutely. I can’t quantify it right now, but absolutely that’s a fact. We have more dealers than we had that are more active and we’ll handle multiple of these products we now have as we go forward. Now the manure spreader, we haven’t made any of them yet, so that was a January (inaudible). Hay balers, we probably won’t make any until next spring. But these are going to give us further inroads into the dealerships.

ROGER MILLER: And the general question on the — at one point I’m not sure I’ve read any-thing about it, but do you still have a warehouse in Bath, New York?

J. WARD MCCONNELL: Yes, we’ve got a couple of pieces of equipment there, yes.

ROGER MILLER: So that’s pretty inactive at this point?

J. WARD MCCONNELL: Well, it never was active, it’s just a parking lot, it’s just a place to park a couple of machines. What it provided us going to New York and Pennsylvania was if we had a half a load out there sold and you can’t ship a half a load freight wise competitively, we might throw a couple extra pieces on there and drop them in Bath, New York. And it’s helped out. I know that last Friday they sold a hay rig from there. So yes, but it’s not a big deal. We have no personnel there.

ROGER MILLER: On the other hand, over in West Union where you purchased your 190,000 square foot warehouse manufacturing facility, when do you anticipate that that will be up and fully running?

J. WARD MCCONNELL: Well, before it’s up and fully running it will be six, eight months. We’re using it considerably — when we make these products we have not any indoor storage for it in Armstrong, Iowa. So we have put it outdoors and sometimes it takes a year to sell it and by that time they get rusty and sometimes you have to repaint it and so on.

And part of West Union is to eliminate that. It’s to get these things undercover so they don’t de-teriorate over a winter and get lost in a snow bank. And we’ll be doing more of that there than we will be producing. But we do intend to start producing a couple of product lines quite soon, a couple of the Miller Pro product lines.

ROGER MILLER: And how far away is West Union from your present facility?

J. WARD MCCONNELL: Interestingly, we’re located in Armstrong and we have a location in Dubuque and a location and Monona that these two fellows have been on with us. This is about 25 miles from Monona, but it’s 200 miles from Armstrong.

ROGER MILLER: So assuming that you could use this place — you’re using it for storage, but it will also be for sales too, won’t it out of that area, to the dealers where they could get the product faster?

J. WARD MCCONNELL: We think that the auger business does sell in circles and we expect to have a circle from there. And we do have an auger there now, so that — we have an auger dealer in West Union, in fact. We think that that circle will go into Illinois and Wisconsin where we haven’t had any prior auger sales offer. Yes. There will be some sales there.

ROGER MILLER: So it looks like you can increase your auger sales by just the new facility. It appears that way.


ROGER MILLER: And in the state of Kentucky, I see what you just mentioned for hay blowers. I noticed on the Internet that you’re hiring a salesman for Kentucky, Indiana and Michigan, I believe.


ROGER MILLER: Is that because you just bought the hay blower business? Or is that because you have a demand down there for –?

J. WARD MCCONNELL: Well, we sell — we’ve been active in that area and we had a salesman leave us, but I expect to be more active in Kentucky.

ROGER MILLER: Because I know — I saw you have a salesman in Ohio and the other three states around Ohio. I guess the question is that’s a big area to cover.

J. WARD MCCONNELL: Yes, that is.


J. WARD MCCONNELL: Well, we have all together 12 reps and direct dealers or direct sales-men, I mean. So we have one in Ohio, we’ve had one in Indiana, we have one in Illinois, we have one in Wisconsin and he has part in Minnesota and we have one in — that covers half of Iowa and we cover have another one that covers the western half of Iowa and Nebraska, so they’re across the country but they all — they all have very large territories.

ROGER MILLER: My next question, if you don’t mind me asking this is, — or maybe it shouldn’t even be directed to you, but I believe it should. Adamson Global Technology you own, correct?


ROGER MILLER: And that appears to be a very successful Company. I really don’t have a lot of knowledge of it, but the products seem impressive. How much of Vessels’ business now is going to them?


PAT O’NEILL: We had — other than what was listed, we have not had any other orders from them this year. They buy from multiple tank manufacturers. This particular project was — we had the opportunity to win this based on other competitive bids that they received, but they deal on a regular basis — they don’t manufacture anything.

They have other tank manufacturers build a product for them and they’re on the East Coast, ob-viously. So in a lot of cases it makes sense for them to source out east and they do source — I don’t know what the exact number is, but I think they use about six tank manufacturers on a fairly regular basis. So the order that was listed was for a project in Indiana that they got, so we were on the logi-cal choices for that. But that was the only order we’ve received from them this year.

ROGER MILLER: And do you feel there’s a possibility going forward you’ll do more business with them, or opportunity to bid there?

PAT O’NEILL: We do some quoting. We tend to come out on the high side, quite honestly. Some of the products — they have somewhat of a standard product that day sell and they’ve sold for years and they’ve utilized some pretty consistent sources for those products that tend to do it a little more efficiently than we can. And again, a lot of their projects are out east, so from a freight standpoint it makes sense for them to use sources out that way.

ROGER MILLER: Yes, and loyalty is always important in business, I’m sure.


ROGER MILLER: Well, you mentioned quite a number of — an increase in business at Vessels. If you go back since Vessels was formed, I would say it’s almost shocking the fact that the Compa-ny has improved so well. How long have you been there?

PAT O’NEILL: Just under two years.

ROGER MILLER: It’s probably been amazing the last two years how well Vessels has turned around?

PAT O’NEILL: Well, we’ve got a long way to go and it’s all a matter of what I said earlier. It’s putting out a quality product and hitting ship dates, and if we can do that on a consistent basis there’s no reason why we won’t show the same improvements going forward.

ROGER MILLER: So this is — is this business more of an on-demand product business?

PAT O’NEILL: Yes, yes, nobody — there isn’t anybody out there that stocks tanks, typically. If somebody has a standard product line that they offer a distribution base, let’s say they may stock a few tanks, but very few are stocking steel tanks, when they get the order they place the order with us. So it’s not that we can go fill up somebody’s warehouse with tanks.

ROGER MILLER: Is there any international business that could be had in this business, or is the freight cost prohibitive?

PAT O’NEILL: It tends to be prohibitive. Now we’ve got some unique things that we do with the tanks, especially with our lining that we have. And we just shipped, as a matter fact, yesterday, two tanks to Korea, but that’s — those are few and far between. We don’t pursue that very aggres-sively because we have enough market over here that we can pursue and I don’t feel as though we’ve mastered that yet, so I don’t want to expand our reach too far. But if we get an inquiry, certainly we follow it up.

ROGER MILLER: Do you want to describe the lining of the tanks that makes you unique?

PAT O’NEILL: Yes, it’s a polyethylene lining that we actually put in the tank as a powder anti-tank goes into an oven and rotates at 500 degrees for about 40 minutes. And it applies a 90 mil thick plastic lining to the interior of the tank. And when applied properly it extends the tank life dramati-cally because there’s no water touching the metal.

We do a good job at it, and it’s not something — we have some very consistent customers that like it. There are other customers that we haven’t been able to sell on the process yet. Along with that lining we also offer the complete range of spray-on linings which is more of a standard in the markets that I pursue. But we will continue to push that as we perfect it even more.

ROGER MILLER: Is that lining — do you have a patent on that lining or is that someone else’s technology that you’ve adapted?

PAT O’NEILL: It’s a technology that’s been around for quite a few years. I worked for a company in Middletown, Ohio, that built tanks like this back in the early ’50s and they were very successful at it, but it’s unique to pressure vessels. It’s somewhat of the same process people use for pipe linings and those types of things as well. So it’s not a patented process, it’s a technology that’s been out there. It’s just a matter of who chooses to utilize it. And in the tank business we haven’t found anybody that’s doing it as effectively as us.

ROGER MILLER: And I suppose it appears there wouldn’t be any reason for you to manufac-ture any vessels and store them in West Union unless it was a huge order. Is that correct?

PAT O’NEILL: That’s correct, yes. Yes, we would — in fact, we haven’t been able to get to the point — I have wanted to come out with a standard line of tanks that we can kind of take off the shelf, but we haven’t had the time or the resources to get into that as of yet. But going forward there might be a need for it.

ROGER MILLER: And I have a question for Dan Palmer, if that’s all right.

DAN PALMER: Yes, I’m here.

ROGER MILLER: Is there a possibility in your manufacturing process where you may need the warehouse in West Union to store components, buildings, or even manufacture there if the expan-sion was needed?

DAN PALMER: It’s possible; certainly it’s possible. Probably a better opportunity is if fabrica-tion takes place there that parts and pieces and componentry could be inter-company completed. But at this point, we’re operating in 50,000 square-foot plant which would be capacity three times what we’re doing today. I think that’s a ways off.

ROGER MILLER: Okay. Well, thank you and you’ve answered, I believe, everything I had on my mind at this moment.


OPERATOR: (Operator Instructions). Gentlemen, at this time I have no further questions.

JIM DREWITZ: Ward, go ahead and close it out today then. Great call.

J. WARD MCCONNELL: Thank you. Thank you, a lot, everyone, for participating again. We hope that we’ve given you enough information to help you and we’ll continue to put out information and be as transparent as we possibly can be. Thank you again.

OPERATOR: This concludes today’s conference call. Thank you for attending.

[Thomson Financial reserves the right to make changes to documents, content, or other informa-tion on this web site without obligation to notify any person of such changes.

In the conference calls upon which Event Transcripts are based, companies may make projec-tions or other forward-looking statements regarding a variety of items. Such forward-looking state-ments are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking statement based on a number of impor-tant factors and risks, which are more specifically identified in the companies’ most recent SEC fil-ings. Although the companies may indicate and believe that the assumptions underlying the for-ward-looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that the results contemplated in the forward-looking state-ments will be realized.

LOAD-DATE: July 19, 2010

Copyright © 2009 Art’s Way Manufacturing Co., Inc.
Site Map

Corporate - Art's Way Mfg