Shiloh Industries’ Sales Continue to Rebound

Crain's Cleveland Business

Shiloh Industries continues to turn itself around, with rebounding sales and a slew of new products coming to market. Now it’s hoping that, with many product development costs behind it, it can also get its earnings up to speed.

The Valley City based company’s positive results are evident, so far, in the company’s revenue growth. Sales of Shiloh’s automotive products jumped to $1.1 billion in fiscal 2015, ended Oct. 31, 2015, up 26.2% from fiscal 2014.

Sales continued to rise, albeit more slowly, in the first quarter of fiscal 2016, when they were up 3.9% to $251.1 million.

Profits, though, have not kept pace.

The company earned $87.1 million in 2015, up 9.4% from $79.6 million in 2014. That’s a nice increase that most companies would be glad to have, but most companies also would like to see their earnings grow as fast as their sales, if not faster.

And in the first quarter, Shiloh lost $5 million after posting earnings of $2.4 million in the first quarter of fiscal 2015.

The first-quarter loss was attributed primarily to a decrease in the value of Shiloh’s scrap metal and one-time professional service fees.

But the company might now be entering a period in which it has far fewer costs than it did last year, while the outlook for sales of its products — many of which are used to make cars lighter, more efficient and less noisy — remains strong, said Jay Potter, Shiloh’s chief financial officer.

“We had a record year for new business,” said Potter, who noted that the company has been adding both new customers and new products at a rapid rate, as it transforms itself from a blank stamping company into a product development company more integrated with its customers and their vehicle designs.

As recently as 2012, half of Shiloh’s sales came from just two customers — General Motors and Chrysler.

Today, it has half of its business spread over five customers, Potter said. That has allowed it to capture growth not only from GM and Chrysler, which have increased their spending with Shiloh by 40% since 2012, but also to participate in the growth of other car makers and tier-one suppliers, he said.

As U.S. auto sales have rebounded, reaching a record 17.5 million in 2015, Shiloh’s business with nearly all of its customers has increased as well, Potter said.

By working more closely with customers and expanding its own manufacturing capabilities, Shiloh also has been able to take advantage of new trends in the auto industry, Potter said, including “lightweighting,” as virtually every automaker seeks to make their vehicles lighter and more efficient.

“We’re seeing more and more customers seeking lightweighting solutions today,” Potter said.

Costs in the rearview

Ironically, however, some of the same trends driving Shiloh’s sales also have been driving its costs. Making more light weight products means working with products other than steel, such as aluminum and magnesium, and that incurs substantial costs.

The company launched 527 new products in 2015 — three times as many as 2014, when Shiloh brought about 175 new products to market, Potter said. It also meant hiring more people; employment at Shiloh jumped, from 2,000 people in 2013 to about 3,400 currently. “What that does is create a significant amount of startup costs and inefficiencies that we faced in 2015,” Potter said.

But, today, the scenario is turning around.

Now, Shiloh has all those new products incorporated into automaker designs. So the sales payoff is ahead, while the startup costs are mostly in the company’s rearview mirror.

The new products and sales contracts that Shiloh secured in 2015 represent $1.3 billion over the life of the vehicles it is supporting, Potter said, or about $230 million in annual sales.

That’s on top of existing sales to existing customers and vehicle platforms and 60% of those new sales represented the sale of light-weighting technology the company has invested in, Potter said.

Now the company needs to stay focused and hope that the U.S. auto market does not lose strength.

Potter, at least, seems optimistic.

“Based on what we’re feeling about our first quarter and the fourth quarter of last year — when the challenges hit us the heaviest in terms of these launch volumes and getting some of these startups going — we think it’s going to be a pretty decent market,” Potter said.

The value of diversity

Others seem to think the winds will blow in Shiloh’s favor as well, at least in terms of the U.S. auto market.

The Wall Street Journal recently reported that 2016 auto sales could hit 18 million vehicles, driven by low interest rates, low gasoline prices and an improving labor market. If that holds true, Shiloh stands to benefit with further increases in sales. Plus, with a more diverse customer base, it no longer will matter much which car company fares the best, because Shiloh is selling to many of them.

J.B. Maverick, a former commodity futures broker and stock market analyst who writes on the website Investopedia, wrote Feb. 16 that he expects Shiloh to have a solid year.

“Shiloh moved strongly in 2015 to position itself well for the future, even though this meant making some substantial capital expenditures such as those required for a new plant in Tennessee,” Maverick wrote.

“The upfront expenses required for new product launches should eventually show a return in additional revenue generation. Realizing it needs to improve its profit margins, the company is shifting its product portfolio to higher-margin and value-added products.”

Maverick also predicted Shiloh’s recent efforts to expand in China, where auto sales are also on the rise, would boost the company’s revenues this year.



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Tue, March 8, 2016