Persist sluggishness in the U.S. housing market recently pushed the stock price for Richmond nail-maker Tree Island Wire Income Fund (TSX:TIL) to multi-year lows despite a newly profitable balance sheet and a new CEO who has big plans for growth.
Dale MacLean assumed the reins of the fund’s 354-employee Tree Island Industries (TIL) from industry legend Ted Leja on July 18 and spent much of his first month meeting employees in Richmond and at the company’s three plants in California as well as suppliers and large customers.
“This company is poised for growth,” said MacLean, who is chairman of the Prince Rupert Port Authority and left a post as executive vice-president at hardware supplier Taymor Industries to take the top job at Tree Island. “I’m confident that we’re trending for improved profitability since the downturn.”
MacLean’s confidence stems from his belief that the U.S. economy will pick up and a sense that the company’s two-year-old strategy to streamline where necessary, focus on profitable businesses and offer competitive prices is starting to pay off.
The company generated a $29,000 profit on $27.7 million in revenue in the three months that ended June 30. That compares with a loss of $190,000 on $27.7 million in revenue in the same quarter a year ago.
Things would have been even better had the Canadian dollar’s rise not weakened the 57.8% of sales that come from south of the border.
The challenge, however, will be to convince investors that the company has a steady hand at the helm after Leja took a second retirement following his return to provide stability during the economic downturn for the company he led between 1994 and 2006.
Leja will remain as vice-chairman of the fund’s board of trustees.
“They were so well led by Ted Leja that I’m sure he will be missed,” said Tricor Pacific Capital Inc. partner Rod Senft, who was once a large TIL shareholder and board member. “I have the utmost respect for him. In a very difficult time, he provided great leadership.”
Senft sold his stake in the company in 2006, not long before the fund’s units hit a high of more than $8 in the summer of 2007.
He no longer follows the company’s share price closely and said, “I’m in shock,” when Business in Vancouver told him that the fund’s stock traded as low as $0.20 earlier this month.
The stock had bounced up to $0.25 by press time, giving the company a market capitalization of about $5.7 million.
Tree Island restructured about $35.8 million of long-term debt in March, and its August 11 earnings report noted that on June 30, the company had $94.9 million in assets and the same amount in liabilities.
MacLean stressed that the company has cash on hand and that there’s no chance that it will go out of business.
One of MacLean’s first tasks was to add two new salespeople to his 223-employee team at the company’s 400,000-square-foot nail and wire manufacturing facility in Richmond.
“The question I always ask myself is, ‘Is the market coming to us or are we going to the market?’” he said. “If you don’t have people in the trenches who understand the business, you’re not going to go to the market. The market today doesn’t have the people to come to you.”
TIL’s sales have been hurt by U.S. housing starts, which fell 1.5% in July. According to Bloomberg calculations, that puts U.S. housing starts on pace to hit 566,000 in 2011 – the second lowest total on record after 554,000 in 2009.
However, only 29.2% of TIL’s business is in the home construction sector.
That’s more than the 20.5% of sales to the commercial construction sector, but less than the catch-all category that MacLean calls “industrial and original equipment manufacturing.”
Just over 37% of TIL’s sales are to companies that make everything from wire shelving units for retailers to bed springs, chain link fencing and paint can handles.
The rest of the revenue comes from selling to companies that make hangers and other items.
TIL’s sales mix could change drastically if MacLean decides to push further into the Asian market.
Several years ago TIL acquired a stake in a partnership with a Chinese wire manufacturer. The deal enables TIL to sell wire products in the world’s most populous nation.
Chinese transactions amount to about 14% of TIL’s total sales, but that could rise depending on what growth strategy MacLean drafts once he settles into the job.
“As for how much international growth and, specifically, where? I’m in the throes of investigating that now,” he said.
“We bring product here from China as well. You always have to look at what are the right options and what is the next economy that’s emerging.”