|JB Brown Featured in WSJ Article “At Indiana Machine Shop, Tough Calls Amid Turmoil”
August 10, 2011
JB Brown Featured in WSJ Article – “At Indiana Machine shop, Tough Calls Amid Turmoil
Written by: Kris Maher, Wall Street Journal
On Monday afternoon, with the stock market in a free fall and the country grappling with its first credit downgrade, JB Brown, president of a family-owned foundry and machine shop, huddled for four hours with other executives to discuss whether to continue an expansion plan they started last year.
The expansion would increase Bremen Castings, Inc.’s capacity for melting metals and require obtaining another $5 million bank loan this week, as the second phase of a $10 million investment, the largest in the company’s 72-year history.
The five-member executive team met in the company conference room in Bremen, Ind., raising what-if scenarios and reviewing order rates and relationships with customers. What happens if some of their 15 major customers, who account for 50% of sales, cut orders by 40%?
“If we go out and spend another three or four million and that work is not there, what are we going to do to capture more market share?,” Mr. Brown said. “It’s a gamble, right? You can’t guarantee anything. I can’t go to company X and say, ‘Can you guarantee this?”
There were other uncertainties involving Bremen’s trucking and agriculture customers. “What if they stop picking cotton or corn and if the [Environmental Protection Agency] passes [further] exhaust legislation. You either do it or you don’t. It’s high risk. If we don’t, someone else will. God forbid the market goes crazy and we’re doing nothing,” Mr. Brown said.
They checked incoming orders and didn’t notice a decline or change. None of Bremen’s customers in the agricultural-equipment, natural-gas, mining or heavy-trucking sectors have cut orders in the past few days. “All of that stuff is really strong and has been for some months now,” Mr. Brown said Tuesday. “As of now, no one is backing down.”
Another positive: While casting companies still face tough competition with lower-cost producers in China, lately some U.S. customers have been willing to pay more to Bremen and other domestic suppliers who can more easily fill small orders, Mr. Brown said. Chinese suppliers often require larger volumes, but some customers don’t want to invest in big inventories – particularly amid so much uncertainty about the economy, he said.
In the end, the executives agreed to go forward with the expansion. “We’re going to pull the trigger despite what the market is doing,” said Mr. Brown, 40 years old and the fourth generation to run the family owned-business.
Bremen, which has 245 employees, had sales of $47.5 million last year, the best in the company’s history, and Mr. Brown said he is “aggressively” forecasting sales of more than $50 million this year, which is why he needs more capacity.
Don Norman, an economist at Manufacturers Alliance/MAPI, said companies have large amounts of cash due in part to increased productivity and demand, which makes them somewhat more comfortable about maintaining investments. Moreover, those serving industries with long lead times such as natural gas and aerospace have to stay focused on the long term.
“Most companies are in pretty good shape right now,” Mr. Norman said.
On Tuesday afternoon, Bremen’s Mr. Brown said he met with officials from his bank for about 30 minutes at the company and secured the financing. The money will be used to buy melting furnaces and other equipment to make front axles for lawn mowers and engine components, among other things. “Those are the chances you take in business,” Mr. Brown said. “I’m still on the fence, but we’re still doing it. It keeps you up a night.”