The global slowdown is prompting changes at a locally headquartered manufacturer that enjoyed record revenues through the third quarter, and a local economist said the belttightening — including a plant shutdown in Ireland — doesn’t surprise or particularly worry him.
NN Inc., which employs about 300 workers at plants in Erwin and Mountain City, announced early Friday it will close an 11-year-old plant in Kilkenny, Ireland, that employs 70 workers. Separately, the company announced it was reducing capital expenditures, eliminating discretionary spending and temporarily suspending its quarterly shareholder dividend.
The moves are part of an effort to offset what NN CEO Rock Baty said would be fourth-quarter revenues 20 percent lower (about $20 million) than projected earlier in the year. NN products supply the auto and heavy equipment industries as well as heating/cooling and original equipment manufacturers.
Steb Hipple, an economist with East Tennessee State University, said the decisions seemed to fit with the game plan of a company that wanted to ride out the current downturn by maintaining as strong a financial position as possible.
“Their products (metal bearing components and industrial plastic and rubber products) are linked very much to investment levels, and investment in capital goods is one of the things that really declines in a time of contraction,” Hipple said.
“In some ways it sounds like pretty good management in place, and they’re just having to adjust themselves to an anticipated business downturn. That means cutting back on capacity.”
Indeed, during the thirdquarter earnings report Nov. 4, Baty tempered the news on record earnings with a warning. The company expected, Baty said, “a significant and sudden volume decline in Europe,” and he added that NN was “currently taking significant operational actions to insure that our cost structure is adjusted accordingly to this dramatic volume reduction.”
NN has four other European plants, in Italy, Germany, The Netherlands and Slovakia, and the Kilkenny production will be merged into these plants when production there ends in February. The company expects the action — including severance pay and equipment relocation — to cost it about $3.9 million in cash, mostly during the current quarter.
ETSU’s Hipple said he expects to see more of this from other healthy companies that anticipate lower shortterm revenues.
“If there are weaker markets, it’s prudent to adjust before rather than later,” he said.
With its recent profitability, NN will face “a real pressure on them to not just maintain profitability but to preserve their financial base. It sounds like they’re trying to maintain their operating funds at a certain level, because if funds go below that, they’ll have to borrow, and borrowing is very hard right now.”
While the company’s balance sheet is healthy, its warnings earlier this month spooked investors, who had pushed the stock above $16 a share as recently as early September. Its stock price closed at $7.55 a share Nov. 3, the day before its earnings report, but plunged to below $1 last Friday. It closed at $1.11 Wednesday, down 11 cents, or 9 percent, on the day.
NN has 14 manufacturing plants (including Kilkenny) and had sales of $421 million in 2007.