In a world obsessed with high technology and all things new, many investors tend to forget the basic products that make society go. These products are those that work in the trenches 24/7 with nary a notice until they are gone. They have gone unnoticed for so long that the companies manufacturing them have been in operation for well over 100 years with nary a note or recognition, except by those responsible for replacing or specifying them. Old-line companies such as these may not be fancy buys, but they certainly are stable ones when the market is less then certain.
Neenah Enterprises Inc., a foundry and forgings company, manufacturers and markets steel castings for municipal and industrial applications. The company was founded in 1872 and is one of only two such large-scale companies operating in the US to serve this narrow niche. Although the company does offer a variety of steel products, its primary market is municipal customers in need of: storm drain covers, manhole covers, specialized tree grates and many other heavy grade steel products used in practical applications. The company also operates in the heavy construction markets, where new and replacement steel product parts are required for tractor trailers, heavy equipment and other civil engineering-type markets.
From a general perspective, Neenah Enterprises is a steel product manufacturer that provides the “nuts & bolts” to keep municipalities and commercial products running. Civil society, and business in general, would be hard pressed to operate at an acceptable level without the company’s products. As such, the company profits almost on a commodity cost basis. Lower material costs means higher profit and vice versa. Having been in business as long as it has, its management has a fairly good idea of where and when contracts are going to be for its replacement and civil engineering updating businesses. Where it has little control is in its raw material, labor and environmental costs.
From an environmental point of view, the company is likely none too happy with the increases found in today’s steel recycling world. It has been using scrap steel for quite some time to manufacture its products and is quickly finding a fairly competitive commodities market for scrap steel. The company does have programs in place to mitigate these rising price issues, but is nonetheless experiencing higher costs where its raw material is concerned.
Also on the environmental side is the advent of the clean air and water acts. These costs have been largely accounted for but are a constant financial challenge for the company as existing and likely newer regulations are met. Where the company has been seeing more positive news is in its labor position. Many industrial companies have been struggling with labor contracts of late. Neenah Enterprises may be facing many of the same issues as other companies, but has managed to put in place an acceptable bargaining agreement through 2012.
The current state of local and federal finances notwithstanding, Neenah Enterprises is an old-line manufacturer operating in an oligopoly situation. It is steeped in its ways and traditions and continues to operate on an even and stable keel as the US grows, expands, and replaces its hardware. The company has done well for over 125 years and is likely to continue to do the same for some time to come.
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