KV Slides Into 2006

August 22, 2005
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GRAND RAPIDS — It's a familiar story in Michigan. A manufacturing company springs forth from humble beginnings around the turn of the 20th century. The company finds its niche supplying a booming business (say, the office furniture industry). The company grows and prospers for several decades. Then, just as a new century dawns, things start to go sour. The company finds itself bringing in new management, restructuring and digging through its R&D files to launch new, more diversified product lines. After a couple of tough years, the company turns things around and comes out stronger for having been tested.

That's pretty much where Knape & Vogt Manufacturing Co. finds itself these days. The company just released the results of its performance during fiscal 2005. Like so many other companies, those results are somewhat flat — not due to poor sales, but due to decreased margins and increased costs associated with restructuring, retooling and relocating business sectors to move into a leaner 21st century. Although net sales are up 5 percent since their fiscal 2000 highs, net income is down more than 64 percent.

K&V's net sales went up to $157.4 million in fiscal 2005. That represents a 7.8 percent increase over the previous year (adjusting for a 53-week 2004). The Grand Rapids manufacturer of drawer slides, shelving, storage and ergonomic office products credits its increased sales to the addition of new products.

Chairman and CEO Bill Dutmers said that the company had added new products in nearly all lines.

"If you look at the two-year cumulative growth, it's double-digits," he said. "Most of it came from new products. But our core products are still strong."

K&V also invested in technology that makes its interaction with customers more efficient and effective, Dutmers said.

According to condensed income statements released by the company, K&V would have had a dramatically more profitable year in 2005 had it not been for $2.27 million in impairment and restructure costs. This stems from the closure of the company's Muncie, Ind., wire processing plant and the relocation of that operation to Grand Rapids. There was one other anomalous number on the year-end statement: The company benefited from a third-quarter $594,000 tax savings, related to "the expiration of certain statutory tax periods and prior year research and development credit claims."

Dutmers credited the restructuring and introduction of new products with the company's 2005 success. He seemed optimistic about the future, saying that investment in new products and streamlined operations "will allow us to achieve our goals for fiscal 2006 and beyond."

Part of those goals will be fine-tuning the company's cross-Pacific partnerships. Dutmers said that K&V continues to move more operations overseas, while at the same time increasing operations in Grand Rapids. The closure of the Muncie plant is a good example.

"The goal is not to reduce production in Grand Rapids. The goal is to complement it," he said. In addition to furthering its "real tight relationships" with its Chinese contract manufacturing partners, Dutmers said the company is working on building a new production facility in Vietnam. With manufacturing in three countries, the company will be more insulated from volatility in steel prices, currency valuation and other factors, he said.

"We're the only U.S.-made slide left," he said. "If there is a crisis in China … we'll be covered."

As for the U.S. market, Dutmers sees the Grand Rapids production facilities growing in the future. He said that 50 percent of the company's drawer slides go to small, custom cabinet shops. These customers, who work both in new construction and remodeling, maintain a steady demand for U.S.-made products.

With Grand Rapids engineers having closer oversight of the relocated wire business (which makes storage and organizational products for the kitchen and bath markets), Dutmers expects a great deal of growth potential in those fields. He is also "pretty pumped up" about the company's adjustable-height tables and a new drawer product for kitchen and bath cabinets.

The company's stock, which had fallen to a low of around $10 in 2003, has rebounded along with the company. It now trades around $12 per share. The company will pay a cash dividend of 16.5 cents per share of common stock and 15 cents per share of class B common stock on Sept. 9 to shareholders on the books by the close of business Friday, Aug. 26.    

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