Conbraco triumphs despite recessionary economy

 

BY MORRIS R. BESCHLOSS,

PVF and economic analyst

emeritus

 

Conbraco Industries Inc., headquartered in Matthews, N.C., has triumphed over the adversity of the ongoing recession with remarkable skill and courage.

 

This 80-plus-year-old family-owned PVF industry paragon has continued to grow and flourish at a time when lesser companies would have sought the benefits of a corporate buyout or a merger with a large conglomerate.

 

But the family team, comprised of president Glenn Mosack and senior executive vice presidents Cal Mosack and Carole Mosack Lee, decided to strengthen this manufacturing leader of commercial, residential and industrial ball valves.

 

What’s particularly remarkable is that the buyback of the large share of company stock not held by the family core group came before the financial crisis of September 2008. In spite of this tidal wave of adversity, the Mosack family decided not only to maintain Conbraco as a family controlled enterprise, but moved boldly ahead in continuing their capital expansion and aggressive market development. Conbraco achieved capital expenditures of $23 million in the past five years, with $7.8 million spent in capital equipment in the volatile 2008 year alone.

 

In the past year, Conbraco added immeasurably to its executive strength by bringing into its fold a leading valve industry marketer, Tony Favilla, as vice president-sales and marketing. His credentials include a multi-year stint at Nibco, after which he headed up Crane Valve’s commercial division, which included the revival of Stockham Valve.

 

As one of the largest independently held valve manufacturers, Conbraco has 1,200 employees, a cherished industry brand name in Apollo, an international presence, including Canada and Great Britain, more than 2,000 authorized stocking distributors and a finished product inventory of up to $20 million. Conbraco deserves the highest respect as it has continued to expand its dominant industry position.

 

To help the PVF industry in general and our readers in particular understand this unprecedented achievement, we were privileged to receive the following answers in an exclusive interview with Glenn and Cal Mosack.

 

Beschloss: I have long been an admirer of Conbraco’s achievements. Not only because of your growth to well over $100 million in revenue annually, but that you have been able to grow stronger internally, while consolidating the family’s hold by buying back outstanding stock. This would have been a remarkable achievement in strong economic years, but most incredible in the past nine months. What is the secret to this unparalleled success?

 

Mosacks: Morrie, we’ve actually surpassed the $200-million milestone in annual revenue. We attribute our success to a complete focus on marketing and promoting our core Apollo products to specific markets, including industrial PVF, commercial and mechanical, waterworks, irrigation, fire protection, and power, to name a few.

 

We are blessed to have a dedicated and highly talented work force that truly cares about the viability and success of the company. We are fortunate to have a strong relationship with our lenders to help facilitate the transaction. Our stock buyback was accomplished in May 2006.

 

Beschloss: While there are still many independent PHCP distributors, family-owned manufacturers in our industry are becoming few and far between. Based on your significant revenue stream, you certainly are at the top in size of independent valve manufacturers — and rival even those publicly held. Since you must carry a heavy debt to accomplish both your continued internal growth, as well as paying off the stock buyback, steering the Conbraco ship through these shoals so successfully has mystified the industry. Could you clarify this accomplishment?

 

Mosacks: We owe our ability to continue to pay down debt to several factors. The single most important factor has been the tremendous support we’ve received from our customer base. We’re indebted to the mechanical contractor, who specifies Apollo and asks for it by name. We’re grateful to the industrial end user, who demands Apollo for numerous applications, including severe service and has a need for exotic alloys that we pour in our Conway foundry. We are also in this fortunate position due to strong and loyal support from our extensive distribution.

 

We were almost at a zero debt when we took on our new arrangement for the stock buyback. Since the deal was done in late April 2006, we have reduced that debt by 28%. Even in this tough environment, we have reduced our debt another 10% in 2009. Our lean manufacturing environment and commitment to continuous improvements allow us to quickly adjust our cost structure to whatever level of sales we are being blessed with. Late 2008 to the current date are a great example of this.

 

Beschloss: The Apollo brand name has risen to the top of the heap among architects, engineers, mechanical contractors, OEMs, industrial maintenance engineers and project managers alike. With the rapidly changing turnover of many of these personnel positions, how have you kept your brand name so brightly burnished?

 

Mosacks: We push the Apollo brand everyday. We focus heavily on presenting our unique story of being a third-generation, family-owned and operated business. We wave the “Stars & Stripes” to all markets we serve. And most importantly, we value the relationships with our customer base deeply.

 

Even with personnel changes that occur with some regularity, it’s paramount that we maintain a close relationship with whoever occupies positions that are critical to our brand preference.

 

Beschloss: Could you refresh our readers regarding what aspect comprises Conbraco’s major end-use industries, serviced by your massive team of authorized distributors?

 

Mosacks: The industrial end user base, the E&Cs, A&Es, power are all serviced by our industrial PVF distributors. The mechanical contractor, plumbing contractor and industrial contractor are serviced by both the industrial PVF distributor and the commercial/plumbing wholesaler. We have a massive array of products that we manufacture that are sold through these specific channels. We offer everything from backflow prevention devices to special alloyed top end ball valves.

We’re not overly dependent on any one market, which has served us well.

 

Beschloss: With the unparalleled momentum Conbraco has achieved and with the magic of the Apollo name, are you planning to expand your product offerings to take advantage of your overwhelming market position?

 

Mosacks: We maintain an active R&D group. We are always looking to add complimentary products to all of our core product offerings. We have committed $2.5 million annually to development and introduction of new products, some of which are coming out as we write this. We are committed to accomplishing this through internal development or through an acquisition.

 

Beschloss: Despite the judicious guidance through your complex financial problems, have you secured the durable credit lines necessary to see you through the still fragile financial restrictions facing American business?

 

Mosacks: We actually just refinanced in November 2008 with a five-year arrangement with better terms and rates than our previous arrangement. Our current financing is with Bank of America and RBC Centura. To use their words, “We like your growing financial metrics, your management team, your commitment to grow your business, and your commitment to continuous improvements.”

 

Beschloss: Please give us your outlook for business in the PVF-oriented industry for the rest of 2009 and 2010.

 

Mosacks: We believe 2009 and 2010 are unprecedented difficult times that do give us opportunities to gain market share. We are the lone industrial ball valve manufacturer that designs, pours, assembles, tests and ships as a “real” U.S. manufacturing company. There’s no one else that can make this statement. A major advantage for us is we have the ability to react quickly to non-planned demand for product.

 

We’re not waiting on a slow boat from China or India or anywhere else for that matter. We control our entire industrial ball valve manufacturing process. There are a lot of very slow industrial markets that are spending very little on MRO requirements and have “shelved” capital projects for the near future.

 

However, there are industrial markets that are continuing to expand. We’re maintaining our focus and commitment to the industrial PVF market place. We are also active in the international industrial PVF business. We believe there are pockets of opportunities in the global industrial base. We must be more creative and run our business smarter than we ever have in our 82-year history.

 

We also see significant growth opportunities in our OEM and contract manufacturing. Many folks are looking for U.S. foundries and metalworking capabilities, and we are well positioned from a cost structure to accomplish their goals.

Beschloss: You have proudly resisted going offshore as a cost-effective basis for even part of your product line. Are you encouraged by the significant swing to buy American, especially when it comes to government-financed stimulus packages?

 

Mosacks: We are encouraged by the push in the stimulus package to have American-made content in the purchases. We are one of only a few who can accomplish this and with the amount allocated to infrastructure, we are positioned well to capture this business. We just wish, like all others, it would come faster than it appears it will happen.

Beschloss: With such a strong emphasis on multi-generational family ownership, are there future generational young men and women being primed to come into the business? Mosacks: We have eight children between the three of us and some are already in college, so time will tell if they show interest in becoming our fourth generation in the business. We certainly hope so!

 

Beschloss: I’m sure you are aware of the thousands of well-wishers who have been concerned about Conbraco’s and the Mosack family’s good and welfare. Is there any message you would like to share with your customers, admirers and industry well-wishers who have seen in Conbraco the American success story personified?

 

Mosacks: We are incredibly appreciative and grateful for the support we’ve experienced, especially since the buyback. We could not have accomplished what we did without the dedication and support of our customer base, reps, suppliers and our world-class group of employees. We will never forget the overwhelming support, letters, e-mails and phone calls. We even received support from some competitors. With our ability to manufacture the best quality product available, ship 97% within 48 hours (10,000 “H” Skus), 95% fill rate, our continuous improvement dedication and our development of new products, we are excited about the future of Apollo!