Chaska firm defies recession by defining its niche

A company that earns its keep manufacturing heating and cooling coils might sound like a sure-fire antidote for a bad case of insomnia. But I'm here to tell you that a Chaska outfit called Super Radiator Coils is a long way from a yawn.

Super Radiator Coils (SRC) is a family-owned business that specializes in short-run, custom-engineered products that are used in everything from supercomputers, grain-drying equipment and operating-room temperature controls to lasers, underground mine-cooling systems and airport jetways.

SRC coils control temperature and humidity in Hormel smokehouses, freeze blood for medical storage, cook then freeze chicken for Tyson Foods, and dry lumber for a passel of paper manufacturers.

Not to mention the temperature controls on the B-1 bomber and the 26-by-26-foot bank of coils used in NASA wind tunnels to simulate the heat and cold extremes encountered by aircraft and spacecraft.

Oh, and did I mention that it's one of three companies in the world certified by the American Society of Mechanical Engineers to provide cooling coils for nuclear reactors?

Add it all up and you get a company that grossed $67 million last year and is on the way to $75 million in 2008, recession or no recession.

The continued growth in the face of economic slowdown is explained in part by the fact that the business lags the economy because of its focus on capital goods that are planned several years out. But the company also is benefiting from a drive the past five years to capture markets that are comparatively recession-resistant: the military and the power generation industry, including oil, gas and nuclear. Helping out is the food-processing industry, a longtime market.

SRC is controlled by Jon Holt, 62, a onetime turnaround specialist who was hired to run SRC in 1985 and led a group of managers in buying the firm in 1987, when sales were $7.8 million. The compound annual growth rate since then has averaged 11.4 percent, which is just fine with Holt, a conservative manager whose actual growth target is 7 to 10 percent a year.

"If you grow too fast, you can outstrip your infrastructure -- manufacturing systems, quality controls, data processing support," he said. The result is "poor quality and a damaged reputation."

The 81-year-old company has long dominated a niche involving specialized engineering, short-run orders averaging 10 to 20 pieces and fast-turnaround production, leaving auto, home air-conditioning and other commodity markets to others.

There's good reason for the choice: The short-run, custom-design model commands premium prices, higher margins and the absence of expensive inventory investments.

"We do not manufacture ahead," although clients do provide forecasts that allow SRC to plan purchases of necessary materials, Holt said. "But we don't build until the order arrives."

Of course, you could look at it another way, he added: "We're always about eight weeks away from going out of business."

After several acquisitions and disposals, SRC wound up in the mid-1980s in the hands of Norwest Growth Fund, now a unit of Wells Fargo. The Norwest agent involved in the transaction knew of Holt's background, including a half-dozen turnarounds, and hired him to run SRC.

While SRC was aiming at niche markets at the time, it leaned mainly on coils for commercial laundry and HVAC installations, said Rob Holt, 34, Jon's son and president of the company. His father has broadened the business to include scores of applications in more than 20 industries.

The client list reflects the diversity: NASA and General Electric, 3M and General Mills, Carrier Corp. and Siemens. But no single client accounts for more than 10 percent of revenue, a policy that again reflects Jon Holt's conservative management style.

"When you get too dependent on one client, they own you," he said.

While SRC continues to grow as the economy convulses around it, the Holts are keeping a close watch on the credit-qualification process, "and we're very concerned about the availability of credit to our clients in the future," Jon Holt said.

SRC is second-largest among a couple dozen companies in the custom-design niche. Its largest competitor is a $300 million U.S. unit of a Finnish conglomerate, but that company concentrates on higher-volume markets involving orders that run from 100 to 1,000 units.

"We try not to aggravate them," quipped Rob Holt. "We just nip at their customer base a little bit."

Dick Youngblood • 612-673-4439 • yblood@startribune.com