E-One's future debated
Expert: Company at risk of being sold
BY RICK CUNDIFF
OCALA - With red ink flowing and sales down, could an eventual sale of firetruck manufacturer E-One by its corporate owner be possible?
At least one industry expert and an investor say yes.
E-One, once the industry leader, has fallen to third place in recent years, with market share continuing to slip. Robert Welding, president and CEO of E-One parent Federal Signal Corp., told analysts and investors during an Oct. 25 conference call that the division that includes E-One will lose $9 million to $12 million by the end of the year.
A representative of a mutual fund that holds Federal Signal stock has raised the prospect that the Oak Brook, Ill. conglomerate will have to sell E-One to satisfy investors.
Brad Evans, portfolio manager of Heartland Value Fund, said during the investor conference call that another year of poor financial performance at E-One would be "unacceptable."
On Oct. 29, in a Webcast on thestreet.com, Evans said a sale might be possible.
"It's well-documented their firetruck business is not performing," he said. "The elephant in the room for these guys is their E-One truck subsidiary. It's only 20 percent of their business. It's losing roughly $15 million to $20 million . . . They either sell it or they turn it to profitability. Frankly we think that there could be some pressure on management to act quickly to turn this division around."
Fire industry consultant Bob Barraclough, who was vice president of sales and marketing for E-One in the mid-1980s, agreed a sale was a possibility.
"It's obvious that Federal Signal doesn't know how to fix it," Barraclough said. "You close it or you sell it."
Federal Signal has given no indication of an intent to sell. David Janek, Federal Signal vice president for investor relations, said the company wouldn't comment on rumors. Spokesman John Segvich said in an e-mail last week that Federal Signal "remains committed to E-ONE's long-term success."
Walter Liptak, a Chicago-based analyst who covers Federal Signal said recently he didn't believe the company would sell E-One. The firetruck maker has long been part of Federal Signal's core businesses, he said.
E-One's troubles come in a tough market for firetruck makers. Welding said in the Oct. 25 call that the market overall was down about 20 percent. Another manufacturer, Elite Fire Apparatus, ran into financial problems that forced Montgomery County, Md. to cancel an order for 37 trucks last week after Elite delivered only one.
Yet days after Federal Signal's earnings report, Oshkosh Truck, parent company of Pierce Manufacturing, the nation's largest firetruck producer, reported gains in both sales and market share for its Fire and Emergency division.
What's Pierce doing right that E-One's doing wrong?
It's not the product. Dealers and industry experts say the machines coming out of the Ocala plant can compete with the best on the market.
The C.W. Williams Company, based in North Carolina, was an E-One dealer in the mid-Atlantic states for 16 years, selling more than 1,000 trucks. The dealership was E-One's dealer of the year in 1999 and 2001.
Dean Allred, the dealership's vice president of sales and marketing said E-One's products were second to none.
"A lot of the success of the C.W. Williams Company success was built on what (E-One) was able to produce," he said. "I'm confident the product they are building today is still an outstanding product."
With new management in 2005, E-One started to limit ways a buyer could customize each truck, Allred said.
"Our challenge was what they were willing to build and what we had to go through to get them to build it," he said.
C.W. Williams invested heavily in service to repeat customers. After 2004, E-One wasn't interested in that, Allred said.
In 2006, the dealership dropped E-One and switched to a competitor, Rosenbauer.
"It was very apparent to us they were very flexible," Allred said. "We found just the opposite of what we were dealing with (at) E-One."
E-One has lost several dealers in key areas over the past few years, including dealerships in western Canada, Ohio and Texas. The company recently appointed Ocala-based Hall-Mark Fire Apparatus as its new dealer in Texas.
"The dealer erosion problem is the most difficult problem to resolve," said C. Peter Jorgensen, editor and publisher of Fire Apparatus and Emergency Equipment Magazine. "It takes a long time for a dealer to build up relationships and trust with a customer ... The loyalty is ... between the local chiefs and the municipality and the dealer."
E-One's restrictions on customized products is hurting the company, Barraclough said.
"You're going to have to rethink, from Oak Brook management on down, what are you going to do? Are you going to be a custom truck builder or are you going to be a Ford or Chevrolet of the firetruck world? There's not room in the industry for E-One to be a Ford or a Chevrolet."
By comparison, Pierce excels in listening to customers, Barraclough said.
"They seem to be listening to their customers a lot more than E-One or American LaFrance," he said. "They have the best sales force in the business."
Management changes and the question of a new E-One plant that ended this spring when Federal Signal decided not to accept a $26.7 million incentive package to build a new plant in Ocala also have negatively affected the company, Jorgensen said.
"The confusion and turmoil over the ... new plant, and the replacement of Marc Gustafson ... that has been very controversial and had a negative impact and genuinely sent a shock wave through the industry," he said. "With the employee changes at management level, and E-One making the decision not to build the new plant, the question of what the long-term future of E-One will be is somewhat open."
Rick Cundiff may be reached at email@example.com or at 867-4130.
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