A farm-equipment maker grows far afield
Lesson: Seek new markets.
(Fortune Small Business) -- A tiny agricultural-equipment company in Iowa is harvesting a bumper crop of profits, thanks to bold globalization, aggressive cost cutting, and neck-wrenching diversification.
Art's-Way Manufacturing (ARTW), a maker of obscure gear such as cattle feed grinders and sugar beet harvesters, has rapidly moved to improve its operational efficiency and broaden its base of business.
"We decided we can't stand still, even in good times," says Carrie Majeski, the company's 33-year-old CEO.
So rather than bet the farm that the current boom in U.S. agriculture will last forever, Majeski and her colleagues have pushed Art's-Way products into China and Russia and branched out into new businesses, such as modular laboratories for scientists and pressurized tanks for use in factories. Recession-daunted entrepreneurs, take note: New markets can be not only an effective counter to slumping sales but an extra kicker for tomorrow's growth as well.
Majeski's efforts are paying off. Art's-Way (named for its deceased founder, Art Luscombe), based in Armstrong, Iowa, saw sales jump 28% last year, to $25 million, and earnings rise 140%, to $2.2 million. Earnings per share did likewise, which trumped lackluster performance for the previous two years and put the company at No. 57 on this year's FSB 100 list.
The push into Europe, it turns out, is coming at a good time. Domestic sales of Art's-Way's plows, ditchers, feed grinders, and defoliators fell about 5% in 2007, following a big run-up in sales the year before, when the company introduced several new models.
Nevertheless, cost cutting and rising overseas sales helped boost operating earnings for the ag-equipment division by 32%, to $1.7 million. Much of the credit for the global offensive goes to chairman Ward McConnell, who owns 40% of Art's-Way's shares. He started setting up displays at agricultural trade shows in Europe and Asia just three years ago.
"We had about $2 million in export sales last year to Russia, China, France, and several other countries," says McConnell, 76. "Not bad, considering we didn't do any exports two years ago."
Though a sustained dollar rally could slow the overseas push, Art's-Way's near-term outlook is sunny: "Ag equipment as a whole is very hot," says Majeski.
Sales for the first quarter of this year are up nearly 28% on the strength of rising farmer incomes and increasing global demand for food. Art's-Way's ag-equipment backlog has grown from $3.9 million in the first quarter of last year to $15.3 million in the first quarter of 2008.
And the company continues to benefit from a reputation for quality. Take its sugar beet machines: Mohamed Khan, an associate professor at the University of North Dakota and head of a sugar beet industry research association, describes them as "very sturdy," even joking that they last too long. Art's-Way is a bit behind rival Amity Technology in exports, notes Khan. But he predicts that both companies will flourish abroad.
Two years ago Art's-Way spent $1.1 million to acquire another Iowa company that made modular scientific laboratories. Now called Art's-Way Scientific, the new division has boosted the company's earnings. Says Joseph Dancy, manager of the private LSGI Technology Venture fund in Dallas, which owns the stock: "This modular-lab business is the gold mine hidden behind the house."
Art's-Way boasts that it can design a customized laboratory, build it in its factory in Iowa, get it certified, and transport it to, say, a university or a firm studying bird flu in the field in a fraction of the time it would take to erect an ordinary lab building. The Art's-Way labs cost anywhere from $100,000 to $1 million. There are a few competitors, but the complex certification process for new labs "makes for a nice, big moat around this business," says Dancy.
Revenues for Art's-Way Scientific were depressed by a 2006 fire at its factory in Monona, Iowa. But they climbed to $7 million last year, up from $1 million in 2006. Operating earnings shot up from $226,000 to $1.7 million during the same period. In December 2006, Art's-Way was trading at less than $5 per share; by June 2008 the price was $20.