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Breaking down the industry’s capex activity

By |  June 26, 2020
Local service is as critical as ever to aggregate producers considering the economic uncertainties brought on this year. Photo: Terex Washing Systems

Local service is as critical as ever to aggregate producers considering the economic uncertainties brought on this year. Photo: Terex Washing Systems

One equipment supplier’s 2020 sales experience can differ dramatically from another’s. But every manufacturer and dealer serving the aggregate industry has felt at least a little pain to date.

Mellott Company, for instance, experienced a brief interruption in demand in the first days of the coronavirus (COVID-19) pandemic. But the company’s volumes steadied after that initial hiccup, with the exception of products purchased through capital budgets.

“Some customer capital budgets have been frozen until we as a country have a better grasp of the pandemic,” says Justin Mellott, inventory manager at Mellott Company. “I believe the industry is waiting for fallout on state infrastructure budgets. There’s an unprecedented number of people that are on unemployment, as well as reduced gas tax revenues due to states’ stay-at-home orders. It’s become a revenue issue and a cost issue.”

Within industry circles, there’s plenty of concern surrounding state budgets right now. So where, Mellott wonders, will states come up with the money?

Supplier experiences

The market’s conditions are driving more construction materials producers toward equipment rentals, which offer flexibility with so many unknowns about the immediate road ahead. Photo: General Equipment & Supplies

The market’s conditions are driving more construction materials producers toward equipment rentals, which offer flexibility with so many unknowns about the immediate road ahead. Photo: General Equipment & Supplies

It’s a question other equipment suppliers are asking these days, as well. But the answer varies depending on the state you’re referring to.

One measuring stick to gauge the health of the states is their construction activity. Out West, where Goodfellow Corporation serves Arizona, California, Nevada and Utah, activity varies considerably by state.

“Every state’s been affected by their local government and governors,” says Sy Harrison, COO at Goodfellow Corporation, which also has employees in Idaho. “Some states are hit harder than others. Our Nevada office is harder hit, even though our contractors down there are busy. They’re getting their work done faster and completing work.

“But then you go into California, and it depends on where you’re at in California,” he adds.

While construction activity in Arizona has been somewhat consistent with a few slowdowns, Harrison says Utah has been pretty steady through the pandemic.

“Our service teams stay busy,” he says. “Our guys are still working 60 to 70 hours a week in Utah and Arizona. In Nevada, it’s more of on an as-needed basis.”

In the Upper Midwest, Micah Tysver’s experience at General Equipment & Supplies is somewhat like Harrison’s. States like Iowa, Nebraska, North Dakota and South Dakota seem to be returning to normal, Tysver says. The experience in Minnesota, however, is somewhat different than those other states General Equipment serves.

“People are trying to put this pandemic on the backburner and not be concerned with it,” says Tysver, sales manager at General Equipment. “They’re focusing on their projects and everyday work.”

That producers across the U.S. continue to work is a big plus considering the uncertainty brought on by the pandemic in late March and early April. But the capital budgets of many producers remain largely frozen, with equipment suppliers hoping for market developments in the second half of the year that bolster customer confidence.

“We do have customers who have put the brakes on capital expenditures,” Tysver says. “We have some projects that we’re still working on to be creative to complete.”

Additional perspectives

The shift in approach is rather stark considering many producers entered 2020 with bold plans.

“Everybody is scared of what’s going to happen in July, August and September,” says Chris Harris, the con/agg manager at Ohio Cat, who visited in recent weeks with P&Q via Zoom. “Early this year, guys weren’t even batting an eye. There was so much work that they weren’t sure how they were going to do it.”

At Masaba, president Jim Peterson says the company had good backlogs of its own coming into the pandemic. The pandemic forced some change, but the industry’s equipment needs remain.

“Some big projects went ahead depending on the company, and some have been deferred,” Peterson says. “Some will just give you the engineering portion now or when they’re more comfortable.”

Peterson believes most spending within the industry will merely be deferred and not outright canceled.

“The aggregate production is up,” Peterson says. “They’re running hard, so they’re doing well. Will that translate into capital spending? We can’t say. All we can do is be here to support our customers.”

According to Peterson, quote activity remains strong at Masaba. Bill Royce can say the same at KPI-JCI & Astec Mobile Screens.

“Going into June, we are quoting 2021 capex projects,” says Royce, regional sales manager for the Southwest of Astec’s AggReCon Group.

But Royce, too, has seen major capital expenditures stall in 2020.

“Any of your large capex projects – the $1 million to $10 million projects – are having the brakes pumped on them,” Royce says. “I don’t know what’s going on, but at the same time [customers] still need to put their wish list down and see where the market is going.”

Rentals

Rentals and trade-ins are a big part of the business at Rock Machinery Co. Photo: Rock Machinery Co.

Rentals and trade-ins are a big part of the business at Rock Machinery Co. Photo: Rock Machinery Co.

The market’s conditions are driving producers and contractors toward renting equipment, which provides more flexibility with so many unknowns about the road ahead.

“In the interim, the guy crushing right now might need to make additional 57s,” Royce says. “That’s where the rental piece can come in. Need a bigger cone or a bigger screen? Dealers will rent that to get them through the season, and then [customers] turn that back in.”

Tysver has also seen improvements in the rental market of late.

“Our rental business has picked up,” Tysver says. “It gives customers a chance to get into equipment and give it a try.”

Another dealer, Stone Products, sees an ongoing trend in equipment rentals.

“It’s picked up from what it was,” says Tom Kovesci, general manager at Canton, Ohio-based Stone Products. “We have a couple more people renting equipment, and a couple other people looking at it – maybe even doing a little financing. That’s definitely picked up in the last couple of months.”

Rentals and trade-ins are a big part of equipment sales at Wisconsin-based Rock Machinery Co. According to owner and CEO Larry Hetzel, there is a right time and place for a rental.

“[Customers] have their small projects they feel they can make money on, but they may need another piece of machinery,” Hetzel says. “That’s a good reason to rent. If they get more business, they may want to extend the rental – and in some cases they may buy.”

Financing

The financing opportunities available present aggregate producers with yet another opportunity on the equipment purchasing front. But friendly rates and terms alone aren’t enough to overcome the uncertainty in the market.

“We’ve seen an uptick in financing,” Royce says. “For most guys, if they have the money in their coffers or with their bank, they’re thinking the fog hasn’t lifted on this COVID. So why would they burn through their cash? A lot of smart guys are going: ‘We’re going to buy something, but let’s go ahead and finance it.’

“Maybe it’s a one- to a five-year project, and they’ll take it off their books at the end of the project,” Royce adds.

Some customers have approached Royce in recent months asking about their financing options.

“Some are asking what types of rates do you have,” he says. “We have a finance arm that can help set customers up and give them good rates and terms.”

As Tysver describes, the current rates make now an excellent time to invest in equipment.

“Manufacturers had some attractive interest rate loans – zero percent in a lot of the lines we carry,” he says. “Zero percent up to 60 months.”

Those who are more hesitant to spend money upfront tend to go the rental route, Tysver adds. But some private companies are particularly taking advantage of promotional deals.

The financing opportunities available aren’t necessarily attractive to the corporate sector of the industry, though.

“Larger companies typically don’t finance or take advantage of the finance,” Tysver says. “They’re cash companies based on performance and profit.”

Parts

A number of equipment suppliers reported good traction on parts sales during the early part of the pandemic. Photo: Rock Machinery Co.

A number of equipment suppliers reported good traction on parts sales during the early part of the pandemic. Photo: Rock Machinery Co.

Although capital projects are somewhat stalled within the industry, supplier parts businesses continue to do well.

For dealers such as Stone Products, the nature of doing business now also means new opportunities on the rebuilds side of the business.

“The rebuilds are definitely helping us out,” Kovesci says. “On the parts side, we’re busy as can be.”

Royce shares that experience, as well.

“We love parts,” he says. “That’s the lifeblood of any factory or dealer. We’ve seen a nice uptick in that. If a machine is not scheduled to be replaced this year, it’s going to be a rebuild.”

Some customers out West are currently double-shifting equipment, Royce says, meaning parts will get worn out much faster.

“The parts are going to thin out the good dealers from the bad dealers,” he says. “The best dealers keep massive inventories on hand because they know, based on that relationship with [the customer], that he’s normally going to need 25 manganese for his cones in a season.

A top-notch parts business is not just about availability, though. According to Royce, it’s also about the people.

“It’s not just the part-on-the-shelf component,” he says, “but does that dealer invest in a PSR (parts sales and service rep). It’s a dealer keeping a guy on payroll who goes out and takes care of parts sales.”

And that rep ultimately takes care of the customer.

“Once the equipment is sold you’re in that next phase: moving parts, breakdowns, hotspotting equipment,” Royce says. “That comes from a parts department but also service reps.”

Kevin Yanik

About the Author:

Kevin Yanik is the editor-in-chief of Pit & Quarry magazine. Yanik can be reached at 216-706-3724 or kyanik@northcoastmedia.net.

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