As the economy begins to get back on its feet, Minnesota manufacturers are in no hurry to increase their payrolls.
Minnesota-based manufacturers, some slapped by sales declines of more than 20 percent, have been closing plants and cutting workers as they try to stay profitable in the Great Recession.
But as the economy begins to pick up, many are in no rush to rehire workers.
At an investors conference Tuesday, Pentair CEO Randy Hogan said, "We are a year and a half from having to add back people meaningfully."
Pentair closed 18 factories around the globe during this recession and this year has cut 1,735 employees from its payroll, about 12 percent of its workforce.
"We're not working at a 40-hour pace right now in most of our factories," said Hogan, who spoke at the Baird Industrial Conference in Chicago, a two-day conference focused on some of the country's largest manufacturers. But when demand for Pentair's water-related products grows, Hogan anticipates current employees will go to full 40-hour weeks with overtime added later.
One of the lingering issues as the United States tries to get its economy back on track is jobs. In October, unemployment hit 10.2 percent, the highest rate in 26 years. The manufacturing sector has been particularly hard hit by the recession. Manufacturing employment in the nation has fallen by 2.1 million workers since December 2007, including another 61,000 job cuts in October.
Minnesota's October unemployment rate, to be released Nov. 19, is expected to increase from September's 7.3 percent. Over the past year, 36,900 manufacturing jobs in Minnesota were lost, about 10.9 percent.
Monthly surveys of supply managers recently have shown that the U.S. manufacturing sector is gradually improving, but employment has lagged. A widely watched index of the manufacturing economy increased to 55.9 in Minnesota in October, indicating continued growth. But employment was the lowest component of the index, at 42.2. Ratings above 50 indicate growth, while those below 50 show contraction in the Creighton University survey.
At Donaldson Co., 21 percent of employees were cut during the recession. CEO Bill Cook, also speaking at the Chicago conference, talked about retaining those workforce cost savings in the company's current fiscal year, which began in August.
"In the last six months of our fiscal year, we lost 30 percent of our revenues overnight. But we were still profitable," Cook said. As the global economy recovers, Cook is looking overseas to expand revenue for his company. "We are moving a lot of our technology to Europe closer to our customer and we are building a technical center in Belgium."
Pentair produced a $37 million profit in the third quarter, a period in which sales fell 23 percent to $663 million.
At Fastenal Co., which sells an array of products to manufacturers at its own retail stores, sales to its manufacturing customers strengthened in recent months, said Dan Florness, chief financial officer. He also made a presentation at the Baird conference.
After a six-month period of free fall in late 2008 and early 2009, Florness said the rate of sales declines is stabilizing, particularly to Fastenal's core manufacturing customers. Third-quarter revenue was down 21.7 percent, to $489.3 million, but in October sales to Fastenal's manufacturing customers were down just 16 percent, Florness said. Meanwhile, the other part of the business, nonresidential construction companies, continues to struggle. Sales dropped by about 27 percent in that segment in October, Florness said.
"Most of Fastenal's construction accounts are private and public infrastructure and could get a lift from [federal] stimulus spending," Baird analyst David Manthey said in a recent research report.
In their presentations Tuesday, the executives from Pentair, Donaldson and Fastenal focused on how they had survived the worst of the recession and outlined growth plans for the future.
Hogan anticipates that Pentair will capitalize on some of the federal stimulus spending on water projects. He expects that bids on about half of the $13 billion allocated for water projects will be let by early 2010.
But he also noted that Pentair is playing a big role locally in the new Minnesota Twins baseball stadium in downtown Minneapolis.
Pentair designed a "water reuse system" for the park that allows the Twins organization to capture rainfall and water runoff, which Hogan said can "be reused to do wash down and irrigate the field."
Donaldson already generates more than half of its revenue outside of North America and Cook said a renewed emphasis will be placed on global expansion. Hogan said that Pentair's ability to design systems that provide clean water in regions around the world will create more sales as the economy recovers. In particular, he cited Southeast Asia, Latin America and the Middle East as fertile territory for Pentair projects.
Fastenal had 2,354 stores as of last month, with only a half dozen outside of North America. During 2010, Florness said he expects that Fastenal will open additional stores in China and Malaysia and may expand in Europe as well.
After putting the brakes on store openings during the bulk of this year, Fastenal plans to open 25 stores in the current quarter.
Liz Fedor • 612-673-7709