The 2016 FAB 40: Planning their next move

It’s been quite a run. Over the past four years many FAB 40 companies have reported big revenue gains. In 2015, not so much, at least on average.

Sales at some big companies either held steady or declined somewhat, mainly thanks to weak markets that by now every fabricator knows about: oil and gas, mining, heavy construction, and agriculture equipment. Other players, particularly those tied to strong markets like transportation, saw dramatic revenue increases.

Overall, the numbers don’t show an industry in crisis, but they do show a chessboard with a lot of pieces on the move. Those who have enough pieces in the right places are doing just fine.

A Sanity Check

The FABRICATOR’s annual FAB 40 list provides a snapshot of the current state of metal fabrication in the U.S. By collecting this information, we hope to give metal fabricators an idea of how some of the leading shops performed financially last year, and what they are forecasting for the current year.

This list has become a window that shows what’s happening in metal fabrication on the ground level—and there aren’t many windows, considering almost all of custom metal fabrication occurs at private companies.

For sure, the revenue and employment totals for the FAB 40 are in effect statistical samples. Revenue from year to year isn’t entirely an apples-to-apples comparison, considering participation in the FAB 40 changes.

But the comparisons do provide a sanity check of sorts. We hear about the struggles in oil and gas. We hear about how agriculture and construction OEMs have bleak outlooks for the next few years. We hear about how automotive may well have reached its peak. And we hear about those sluggish exports and the strong dollar.

But the FAB 40 tells another story, which is not altogether positive or negative, just different. Total combined revenue numbers for all FAB 40 companies are up ever so slightly: $2.16 billion reported for 2015, compared with $2.15 billion reported for 2014. At the same time, total employment is up 5 percent.

Moreover, there isn’t a direct correlation between revenue and employment trends. For instance, if you take the top three companies that participated in the FAB 40 both this year and last, you’ll find that revenue declined by almost 5 percent, yet combined head counts at those three companies increased by almost 7 percent.

Despite softening revenue at some of the biggest fabricators, head counts suggest that many are preparing for significant growth over the long term. The majority of companies project revenue to increase this year, some by only slight amounts while others by double digits. Still, the optimism is tempered somewhat by a handful of large fabricators predicting slightly or significantly less revenue for 2016.

Positioned for the Future

The relative steadiness of FAB 40 revenue numbers shows just how well positioned many top fabricators are for the future. Consider Mayville Engineering Co. (MEC), No. 1 on the FAB 40 for the past five years. Interestingly, if MEC had not made the bold move in 2012 to buy Michigan-based Center Manufacturing, itself a large fabricator, MEC may well be in a far different place today, especially considering its large agricultural equipment customer base.

The acquisition diversified MEC into transportation markets. This in turn spurred more sales in the heavy equipment and recreation sectors. Customers figured the fabricator was big and diversified enough to withstand any downturn, so they felt confident in giving MEC more business.

In 2014 MEC reported revenues of $335 million; in 2015, sales declined to $305 million—a dent for sure, but not disastrous. Still, despite the decline in 2015, MEC said its revenue has increased on average by 19 percent annually over the past 10 years. That’s not bad.

The Strategizing Continues

So how are things shaping up for 2016?

“This year started flatter than we had anticipated. But we gained good traction, and we’re building back up.”

So said Steve Hartliep, sales and marketing manager for De Pere, Wis.-based Robinson Metal. The fabricator has business in a broad range of sectors, making it somewhat of a bellwether enterprise. Hartliep said that its pipe and vessel division took a hit thanks to weakness in oil and gas. He added that he sees a lot of shops that once were heavy in oil and gas now chasing work in other industries, “so we’re seeing a lot of pricing pressure right now.”

To compete, Hartliep said that Robinson is tackling new niches by acquiring less common fabricating technology. What that technology is he didn’t say, for competitive reasons, but he did say that the move should help the fabricator increase its presence in markets that other shops really can’t touch.

That’s one of many moves fabricators are making this year as the competitive board changes. Those moves haven’t made things easy, especially considering the size of the overall market. If you go by the FAB 40’s total revenue numbers, the total market hasn’t increased any significant amount between 2014 and 2015. Big growth in some areas (automotive, transportation) are being canceled out by well-known weaknesses in other areas. Essentially, it’s a wash.

Regardless, the strong fabricators aren’t going anywhere. They’re now just making a lot of strategic moves to tackle strong markets and positioning themselves for the rebound in weaker sectors.

Future Opportunities

This isn’t a commodity business, though it may seem like one to some. Two fabricators may both use laser cutting machines, press brakes, hardware insertion, powder coating, and welding. They may even service similar customers, and yet their financials can be very different. Some of the strategies covered on the following pages explain how this might happen.

Overall, this year’s FAB 40 doesn’t show an industry experiencing record growth. But at the very least, it may hint at just how much opportunity there is to uncover during the years ahead.