STOCK REPORT YE 2003: 2003 A Profitable Year

Jason Sandefur

Profit returned to many publicly traded fastener companies in 2003, following tough market conditions the previous year that forced many corporations to limit spending and trim their workforce.
Nearly 63% of fastener companies tracked by FIN reported a profit during 2003. Fastener firms reporting profit gains of 100% or more included Alleghany, Anixter, Danaher, Honeywell, Kaydon and Textron. By contrast, most revenue gains were modest single-digit increases.
Business picked up steam in the fourth quarter of 2003, with the FIN Fastener Stock Index rising 20%.
Aviall reported the highest gain in share value during the year, with its stock price rising 92.6% to $15.51. Other companies whose share value rose at least 50% included Alcoa, Barnes Group, Paulin, Penn-Engineering and Precision Castparts.
Only two companies saw their share value decrease during 2003: Federal Screw Works, which had a 10% decline in stock price, and Ivaco, whose stock sunk 81.5% amid the Montreal manufacturer”s court-protected restructuring.
During the first quarter of 2004 the number of public fastener companies reporting a profit grew to 73.6%, signaling continued market strength.
The largest percentage gain during Q1 was a 986% increase in profit reported by PennEn-gineering. Other companies with triple-digit profit gains during Q1 included Alcoa, Nucor, Alleghany and Black & Decker.
Only one company, Federal Screw Works, reported a sales decline during Q1 of 2004.
2003 was a period of successes and setbacks for the industry, as fastener companies lobbied to have the 201 Bush steel tariffs repealed after 18 months of trade policy that squeezed many steel-consuming firms.
While the tariff repeal was an industry victory, fastener firms just couldn”t win where steel prices were concerned. The price of steel has set a blistering pace in the last nine months, shooting up more than 41%. Demand from China has prompted a global shortage that is unlikely to improve before 2006. The situation has also been exacerbated as the global economy gathered steam, driving demand for construction and auto steel.
Other commodity prices have also risen sharply in the last year. In China the cost of iron ore soared 260%, while coal and coke prices rose more than 70% during the past 12 months. Electricity rates for China grew 15%, while freight costs from China rose 30% in 2003.
The steel crisis worsened as 2004 dawned, pitting fastener suppliers against automakers reluctant to shoulder increased raw material costs. General Motors relented to a 3% price increase for Textron Fastening Systems, and then sued the fastener manufacturer in an attempt to enforce current contract pricing. Other manufacturers have so far refused to share the steel burden with suppliers. Toyota Motor Corp. is terminating its contract with a U.S. auto-parts supplier who raised prices.
In the UK, auto suppliers have threatened to disrupt the supply chain unless automakers agree to price hikes. Analysts believe such a move would ripple throughout the auto industry in Europe.
But the tough stance by automakers belies the reality that, by some estimates, fastener costs have grown 25% as a result of steel price increases. In such a low-margin industry, those costs can no longer be absorbed by fastener manufacturers.
Despite soaring steel costs, results for the first quarter of 2004 were better for fastener stocks than other industries. The FIN Fastener Stock Index outperformed the competition for the fourth consecutive period, rising 3.4% compared with a 0.5% gain by an index of related stocks.
The strong quarterly performance prompted many fastener companies to predict an even brighter performance in 2004.
“Looking forward, we remain & encouraged by the improving North American economy,” stated Black & Decker CEO Nolan Archibald. \ �2004 FastenerNews.com