Industrial-Lift Manufacturers
Ratchet Down as Boom Eases
By CHRIS ADAMS
Staff Reporter of THE WALL STREET JOURNAL
The boom times for boom makers are winding down.
Coming off a heady five years in which sales growth of
their products jumped more than 40% a year, the
companies that make boom and scissor lifts for various
industrial uses are experiencing a significant letdown,
mostly because of overcapacity brought on by their own
success.
The biggest -- JLG Industries Inc., based in the
south-central Pennsylvania town of McConnellsburg --
recently said sales for fiscal 1998, ending July 31, 1998,
would be below 1997 sales, and that it was cutting 30%
of its work force and closing one plant. Skyjack Inc.,
based outside Toronto, has seen its gross operating
margins slip and earlier this year temporarily reduced its
work force by 4%; Skyjack hopes some new products
will help boost its market share, but company officials
don't expect the overall industry to grow much this year.
The industry's stocks have taken a beating, too: JLG,
from a high of $27.6719 in June 1996, closed
Wednesday at $11. Skyjack is down from about 49.60
Canadian dollars (US$35.57) last June to C$18.75
Wednesday.
"Last year was probably the last one for really big
growth," says Ed Henderson, secretary-treasurer of
Skyjack. "Now we're going to have a bit of a lull."
For a few years, the industry couldn't make its boom
and scissor lifts fast enough. Business was buoyed by
pent-up demand from companies that didn't buy new
equipment during the economic slowdown of the early
1990s, and by new safety regulations that made aerial
work platforms a cost-effective replacement for
scaffolding, which is usually less expensive than
platforms.
The contraptions, called "aerial work platforms," come
in two varieties, and are used as an alternative to
traditional scaffolding. The booms are essentially
baskets fixed to the end of a long, expandable pole.
They look like cherry pickers that might be used for
work at the top of a utility pole, but the base isn't a
truck -- it's a small, motorized vehicle that is controlled
by the person in the basket. Instead of the two people
needed to operate a conventional cherry picker, only
one person is needed to control the boom.
The scissor lifts are a variation, except they go straight
up from the motorized base. They are akin to traditional
scaffolding, but they can move up and down with the
push of a button.
Where Platforms Are Used
The aerial work platforms are used at construction sites
and manufacturing plants, and for maintenance work
and bridge repair. The biggest buyers are rental
companies, including Hertz Corp., that provide heavy
equipment at various construction sites to contracting
companies, as well as maintenance firms.
Both devices have an advantage over traditional
scaffolding, because scaffolding has to be put up and
taken down, making it difficult to move quickly. "It's
very expensive, it gets in the way, it's a mess," says
Alexander Blanton, an analyst with Ingalls & Snyder
LLC who follows the aerial work-platform industry.
The industry also has gotten a boost from new
regulations by the federal Occupational Safety and
Health Administration, which now mandates that
workers at heights of more than six feet be tethered
down. Repeatedly hooking and unhooking somebody
from a stationary scaffold can be cumbersome, slowing
down the job. In contrast, a boom or scissor basket can
move quickly from point to point, with the worker
fastened inside the whole time.
Analysts and the boom makers all agree that the number
of users will continue to grow, both from the continued
inroads into markets still served by traditional
scaffolding and from the gain in largely untapped
overseas markets.
So why the layoffs?
Part of it is due to the down cycle in a traditionally
cyclical industry. Boom and scissor makers got
whacked in 1990 and 1991 during the recession; the
total number of units sold dropped by more than a third,
from 15,900 in 1989 to 9,850 in 1991.
After the recession, pent-up demand helped lift the
number of units well past its previous high. At the same
time, companies introduced new, technologically
advanced units, and so the rental industry updated its
fleets.
The problem is that demand was growing so fast that, in
some ways, it got ahead of itself. "The rental fleets
panicked," says Mr. Blanton, the analyst. "They couldn't
get the machines. So they ordered too much -- months
in advance -- and the producers started to expand
capacity. Now, there's all this new capacity, but the
orders are going down."
Looking at Sales
This year, overall sales are estimated at 51,000 units,
according to Steven Satov, an analyst with
Toronto-based Midland Walwyn Capital Inc. That
would be the equivalent of $1.2 billion in sales. But Mr.
Satov sees 1998 sales at only 52,000, a mere 2% rise.
In announcing its layoffs, JLG pointed to the
"increasingly competitive market conditions resulting
from an oversupply of aerial work platforms." Charles
Diller, JLG's executive vice president and chief financial
officer, said JLG has or is in the process of building two
new facilities to make booms, allowing it to boost
capacity by 50%, and one new facility for scissors,
doubling capacity. When all the facilities are up and
running by year end, JLG will have the ability to
generate more than $700 million in work-platform sales;
but because of overcapacity in the industry, Mr. Diller
said the company expects sales for fiscal 1998-ending
July 31, 1998 -- to be at the level of fiscal 1996, about
$415 million.
In addition to cutting its work force by 850 people, JLG
plans a two-week, companywide shutdown this month
to adjust production and inventory.
"Our industry can't expect to grow at the phenomenal
rate of the last two or three years," says Skyjack's Mr.
Henderson. "There's a lot of equipment in the
marketplace, and we need to get back to more
normalized [sales] growth." Analysts and industry
executives say that is somewhere between 10% and
15% a year.
How long it takes for demand to catch up with the new
supply is unclear. Ronald DeFeo, president and chief
executive officer of Terex Corp., said his company
didn't expand the past few years -- and he's glad it
didn't. Terex, based in Westport, Conn., manufactures
several lines of heavy machinery; about 10% of its
revenue is from booms and scissors, he says.
He estimates that the industry doubled its capacity the
last few years, when it should have expanded by only
about 25%.
"Some of the wounds being experienced now are
self-inflicted," says Mr. DeFeo. "Manufacturers kept
adding capacity, thinking the good times will remain
forever. The key to success of a cyclical business is to
keep costs variable. But in putting up all the new bricks
and mortar, the industry forgot that."
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