Aluminum Extrusion Outlook – Interview with Astro Shapes CEO Paul Cene
With three neighboring facilities in Struthers, Ohio, Astro Shapes (“Astro” or the “Company”) manufactures aluminum extrusions primarily for the non-auto transportation n and building and construction markets primarily in the Midwest and Northeastern U.S.
Overall, how has Astro rebounded from the impact of COVID-19, and how has the business performed in 2021?
COVID-19 has had a significant and lingering impact on our ability to keep production going, particularly from a labor standpoint, both in terms of ensuring the health and safety of our workers on an ongoing basis and incenting people to come in and work. On the other hand, COVID-19 has only increased demand across most of our end markets (such as recreational vehicles and residential building products), and we’ve been running at full capacity for quite some time. 2020 ended up being a record year in terms of earnings, and as we look ahead to the rest of this year, we are on pace to achieve another record sales and earnings level by a significant amount. Our team is operating on a seven-day workweek (up from six) and raised our starting wage rates to negate the workers’ shortage that the entire industry has been experiencing. Overall, 2021 is setting up to be our best year ever.
What are some of the broader supply chain challenges that aluminum extrusion businesses face today, and how are you mitigating those challenges at Astro?
All businesses in our industry are facing material shortages, especially with respect to aluminum billet. Our two supply advantages are, one, we have good relationships with our top vendors—we are significant customers of theirs and have grown our businesses together for a long time—and two, we lock in our supply ahead of time. Our top suppliers carry safety stock for us in some cases, which also helps us serve our customers more effectively. The other challenge is in procuring paint. Our top paint supplier is also feeling some pain with a shortage of workers, but they have assured us that Astro (with whom they’ve done business for a long time) is a top priority customer, and so far, we haven’t experienced any significant service issues.
With rising input and commodity costs hitting most manufacturing businesses, how has Astro been able to navigate those challenges?
For a long time, our industry has largely operated on a pure pass-through basis as it relates to aluminum costs. Costs are passed directly through to customers as they increase, based on a clear formula. There are other aspects of our pricing, however, that are tied to our quality, service and value-add capabilities. Because of our reputation in the market and our ability to deliver product, we have been successful in capturing two price increases in 2021—in addition to passing on higher aluminum costs—and may have to implement another increase as the cost of doing business continues to increase.
What were some of the operational improvements you made during COVID to mitigate any impact?
During COVID, we established an effective system that prioritizes our customers based on a variety of performance factors, and we have taken a customized approach to each customer. Our main focus was to ensure we did not shut down any of our customers, and we were successful in partnering with them to keep them in production. We also made sure to continue maintaining and investing in our equipment so that our production did not slow down. We’ve always been focused on profitability and operate under the motto, “if it doesn’t make dollars, it doesn’t make sense,” and COVID pushed us to step that up even more to ensure we could protect our financials in times when we had to slow or shut down production for health and safety reasons. And lastly, as mentioned previously, we selectively amended our wage rates a few months ago to ensure we were attracting the talent we needed to match our demand.
Can you discuss the end markets you supply into and how those markets have rebounded over the last 12 months?
The primary markets that we serve are non-automotive transportation (primarily recreational vehicles), residential building products and architectural building products. We also serve consumer, medical and other markets to a smaller degree. Every market we are in has experienced a strong rebound over the last 12 months. In particular, our non-automotive transportation market continues to see very high demand over the next few years as backlogs continue to grow and inventory remains low—same with our residential building and construction market. The commercial and architectural market has remained level, and we expect these markets to be a slower rebound.
What does your backlog look like over the next 12 months?
We have a shorter level of visibility into our backlog than other types of businesses, so our backlog is only 30 to 60 days out. However, the forecasts we are receiving from our customers for 2022 are strong, with most asking today to secure 2022 capacity. There has been increased M&A activity in our market as well, so we will have to see how that impacts future demand.
Which end market do you see the most growth out of over the next 12-24 months?
It’s hard to pick just one. My view is the growth that we’ve seen in both transportation and residential building and construction is going to continue into next year and beyond. The expected growth in the RV market seems a bit more dependable due to the COVID hangover, the current state of supply and demand at the OEM and dealer levels and the continued marketing of the products to a younger customer base. Residential building and construction is not slowing down either, as consumers continue to migrate from cities, financing is still cheap and there is a greater focus on investing in the home.
What makes Astro Shapes unique within your industry?
Astro is one of the largest suppliers in a very fragmented market. We have a broad range of value-add capabilities, including decades of operational expertise, strong customer and supplier relationships and a healthy financial profile. Having been with Astro since I was old enough to work, our competitive advantage comes down to a combination of quality, service, dependability, loyalty, honesty and flexibility. It has taken decades of hard work to build this reputation, and I believe we are truly the best.
What are you most excited about for the future of Astro?
The continued growth potential for Astro is extremely exciting. We’ve seen record levels of growth on an organic basis, which presents other types of challenges, but having a stable and growing base of demand with top customers in their own markets is a privilege and a testament to Astro’s strengths and capabilities in the marketplace. I’m also excited about pursuing more acquisitions. We have good experience acquiring, integrating and optimizing acquisitions, and if we can “Astrosize” more acquisition targets, we can grow even faster.
Monomoy Capital Partners is a private investment firm with $2.7 billion in committed capital across a family of five investment funds. Monomoy invests in the debt and equity of middle market businesses that can benefit from operational and financial improvement with a focus on manufacturing, distribution and consumer product businesses in North America and Europe.