NCI adjusts to slowdown with efficiency drive

2022-04-19 07:10:07 By : Ms. poppy yue

Inside an NCI Building Systems plant in north Houston, a machine unspools long sheets of steel to be chopped, crunched through more than a dozen metal rollers and bent into corrugated building panels.

Rolls of metal sheet 1 to 4 feet wide line the floor in all shades of gray, beige, green and red. The building panels and pieces they become are loaded onto trucks and shipped to construction sites to outfit new warehouses, grocery stores, stadiums and schools.

The plant, part of NCI subsidiary MBCI, houses the operations of three NCI plants that were open in Texas before the last recession pushed the company to consolidate, said plant manager Carl Hoffart, who oversees about 127 employees who keep the assembly lines moving 24 hours a day, cutting and bending more than 50,000 feet of steel daily.

As the construction industry has transformed in the last decade, consolidating has been just one of the difficult tasks undertaken at NCI.

Between 2007 and 2010, its market in low-rise, non-residential buildings plummeted by 60 percent, and construction is only now recovering to levels previously considered historic lows. Now, as other economic indicators show the economy is generally rebounding, demand for low-rise buildings has lagged.

"Construction traditionally lags," said Alex Carrick, chief economist for research firm Construction Market Data. "You have to have been making profits for a while before firms commit to spending money" on construction.

NCI's efforts to cut costs, consolidate, and invest in higher-margin products started to pay off in the second half of 2015. And CEO Norman Chambers sees promise in insulated metal panels, a growing segment of the market, driven by demand for more energy-efficient buildings.

Chambers explained in an interview with the Chronicle how he has reorganized the company since the recession to make it more cost-efficient and invested in insulated building materials.

Since 2010, nonresidential construction has been mostly recovering nationally, though it dipped last year. In 2015 that segment dropped 8 percent in spending on new construction, research firm Dodge Data & Analytics reported.

Yet NCI's net income grew to $17.8 million in 2015 from $11.2 million the previous year. After two quarters of losses in 2015 - also related to the seasonal nature of the construction business - net income rebounded in the third and fourth quarter enough to generate profit for the year.

That success follows years of improvements and pains. The company cut 40 percent of its workforce in 2009 and closed or sold a quarter of its manufacturing plants as the market hit bottom. Margins dropped from nearly 25 percent to 17.4 percent in one year, in 2009.

NCI now employs about 5,200 globally and 893 in the Houston area. It owns 19 brands that fall into three categories of steel manufacturing.

First, sheets of steel are prepared with paint and protective coatings. At the second step, companies like MBCI cut and shape steel into metal panels ready for construction. The final tier designs entire metal buildings using those panels. Before the recession, the subsidiaries operated independently, each with its own engineers, manufacturing plants and sales departments.

"That model worked well for many, many years, but as we found, we were now in a very severe downturn ... survival was not guaranteed," Chambers said, his Boston accent unaffected by his years in Houston. "Bankruptcy was a fear because our markets dropped so quickly."

It consolidated its plants, and its teams of engineers who design buildings, so that each now serves several of NCI's brands. With less infrastructure and fewer support personnel, NCI cut costs and improved its margins. The company now has 43 manufacturing plants, mostly in the U.S., and one each in China, Mexico and Canada. It has six in Texas. In 2015 margins were back at 23.4 percent, mostly due to the cost cuts, Chambers said.

"We've cut some layers of management. We've changed the way we operate," Hoffart said of the MBCI plant.

As an example, he said, the company is more efficient about ordering only as much steel as is needed.

Dan Walker, associate general manager for the Metal Building Manufacturers Association, said metal buildings are also attracting new customers in retail and office space. Durable metal roofs are one draw, and the low cost of steel is giving metal building companies an advantage of offering lower project costs compared to other materials like concrete or brick.

However the lower cost of steel adds another challenge because the building market demands that NCI lower its prices as the price of steel drops.

At least NCI isn't ailing from low oil prices the way that many Houston companies are.

Though based here, NCI has 19 companies that operate across the country, so its work mirrors national trends. Chambers said about 2.5 percent of NCI's work was for oil and gas companies when the industry was booming, and that has dropped to about 0.5 percent.

With little overall exposure to oil and gas, and other parts of the economy growing, low oil prices are benefitting NCI more than hurting, saving the company money in manufacturing and shipping products.

NCI specializes in producing steel beams customized for each project, using only the amount of steel required for the building's needs, which makes a difference considering steel accounts for about half of costs. NCI builds each piece in its plants and ships them to the construction site, making putting it together cheaper and faster.

"Every piece is bar-coded, and it's put together just like an erector set," Chambers said.

The design takes into account what the structure is being used for, but also building codes that vary by state and even county, with requirements for wind pressure in Florida, snow loads in Colorado, and seismic risks in California.

Increasingly, architects must abide by more stringent energy-efficiency standards in local building codes. Those requirements are driving growth in insulated metal panels, an area NCI has been investing in since 2010, when it converted two plants to manufacture such panels.

It bought Metl-Span in 2012, then the largest insulated metal panel business in North America, Chambers said. Then last year the company bought Centria for $245 million, which Chambers said produces higher-end products, such as insulated metal panels used for football stadiums.

The insulated panels also have more aesthetic appeal, Chambers said, and make installation easy because they are a wall in one piece - metal interiors and exteriors with insulating foam in the middle.

Sales in insulated metal panels are growing faster than any of NCI's other products, Chambers said. They make up 23 percent of the company's sales, but a third of its profits, he said.

The market for insulated panels is still in its early stage, D.A. Davidson & Co. analyst Brent Thielman said.

"It's an under-penetrated area. It's kind of a new idea in the States, but it seems to be gaining a lot of steam," Thielman said.

Brad Curtis, president of Tyler Building Systems, an East Texas company that buys materials from NCI, said his company's projects rarely require insulated metal panels, but he sees that segment growing. He predicts energy codes will be one of the biggest driving forces in the market over the next decade.

Chambers said he probably won't look for more acquisitions in insulated panels, but he plans to increase that segment.

"I think we have everything we need," he said. "What we have found is the product is growing by virtue of the natural demand growth for both the energy efficiency as well as the structural appeal."

Rather than eating into the company's other products, insulated panels are taking market share from more traditional materials like concrete, brick and wood, Chambers said.

The non-residential market is still a long way from the average number of projects per year generated in the last 50 years. But NCI managed to grow in a year when its market shrunk.

Dodge Data & Analytics reported that construction overall grew last year, and that momentum could be a good sign for builders of schools, distribution centers and other low-rise buildings.

Sarah Scully is a business reporter for the Houston Chronicle.

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