Equipment spending still healthy, active in 2019

The narrative for the aggregate industry between the Great Recession and the last few years is well-known by now, but let’s set the scene once more to provide greater context of how today’s producers are currently approaching equipment investments.

In this instance, let’s allow Greg Helfrich, the national operations manager at Elrus Aggregate Systems, to take us back.

“There was a lack of capital spending in the industry from 2010 to 2017 as a result of the economic recovery from the Great Recession,” Helfrich says. “Crushed tonnage really didn’t approach 2007 levels until around 2018-19. Balance sheets were ‘woe is me’ stories, and a backlog of capital spending that needed to happen carried from 2009 to 2017.”

The last few years, of course, brought greater economic recovery and higher levels of capital spending. As Helfrich describes, the most critical spending was completed in 2017 and 2018. Equipment lead times, in many cases, soared during that stretch.

Now in 2019, capital spending has backed off a tad.

“A lot of companies have satisfied the most pressing needs they had in their equipment fleets,” Helfrich says. “Now, the spending is switching from ‘I need to replace this’ to ‘I need to address efficiency.’”

In other words, aggregate producers are being a bit more strategic in how they go about buying equipment.

“The buying that went on in 2018 was: ‘I need one of these,’” Helfrich says. “The buying happening now is: ‘I need to rationalize this.’”

Although the 2019 camp of producers having to rationalize purchases doesn’t include everyone, a number of manufacturers agree the pace and approach to investments have changed from only a year ago.

Influencers, including the weather

Patrick Moyer, general manager of process systems at Weir Minerals, is one manufacturer who characterizes 2019 capital spending in a similar fashion as Helfrich.

“So far this year it’s been a very cautious market with people holding onto their capital,” Moyer says. “I think there’s a couple reasons: there was a great deal of buying last year, and a greater investment in infrastructure was anticipated but has been pending in legislation.”

There are secondary factors driving 2019 capital spending downward, as well, including the weather.

“Given the fact that 2019 had an extensive winter – and a very rainy season past the winter – I think it allowed most everybody to take a deep breath, [determine] where I am with the money I spent thus far, and [determine] where do I need to be for 2020.”

A number of the regions one equipment trailer manufacturer serves were significantly impacted by rain, as well.

“A lot of the areas we serve were hit with an extremely rainy spring,” says Troy Geisler, vice president of sales and marketing at Talbert Manufacturing. “With construction in general, anytime a hole is being dug you have to wait for that hole to drain to move forward. There’s been a lot of start and stop with projects. It’s frustrating for end users.”

Dave Stewart, director of marketing at Screen Machine Industries, also points to the weather as a contributor to the industry’s dip in equipment sales.

“You hate to blame the weather, but this spring was so wet and devastated by flooding,” he says. “That has an impact on heavy equipment purchases and usage.”

On the upside, improved weather midway through this year should allow some producers to extend their production further into 2019. This should better position them on the capital spending front.

“It’s been so mild going into fall that a lot of customers have been able to extend their season,” Geisler says. “Not all of it, but a lot of it.”

Still in a good place

While 2019 has not been 2018 in terms of capital spending, the year has still been one of the industry’s best in recent memory.

Kristen Randall, marketing manager at Haver & Boecker Niagara, entered the aggregate industry in the years just before the Great Recession. Having experienced the industry’s leaner years, Randall says equipment sales have come a long way over the last decade.

“The downturn hit us pretty hard,” she says. “2009 was a really tough year for us. But we’ve seen steady growth ever since that downturn. It used to be more volatile. Now, the growth is steady and easier to plan for.”

Growth in recent years has also been steady at Major, the screen media manufacturer.

“2018 was really strong, one of the strongest years I can remember,” says Matthew Armstrong, Major’s business development analyst. “We’re now seeing a slower pace than 2018, but still a pace that most equipment manufacturers would have killed for in 2017 and earlier.”

According to Armstrong, demand for screen media was still high from the start of the year onward. The start of 2019 was positive for Philippi-Hagenbuch, as well.

“The end of 2018 was very strong for us,” says Josh Swank, vice president of sales and marketing at Philippi-Hagenbuch, whose company provides custom off-highway haulage solutions. “We entered the year with a very strong backlog and lots of commitments from clients. January-February was extremely strong, to the point that it fully committed us for the next eight months.”

The tide, however, changed at the end of the first quarter, Swank says.

“March, April, May and June were extremely slow,” he says. “It was crickets. People weren’t moving forward with projects.”

Philippi-Hagenbuch was hardly the only manufacturer experiencing the pause, though.

“By going to various association meetings and events and talking with other people in the industry, our situation sounded very similar,” Swank says. “As I spoke to manufacturers in aggregates, they were seeing the same thing. It’s an anomaly that we’ve not quite seen before. It didn’t match what was happening from a production standpoint.”

Orders ramped back up at Philippi-Hagenbuch around July 4, Swank adds, and they’ve been on an upswing since.

“What we have heard from a lot of our clients is that the independents tend to wait until October, depending on how their year was, to determine how much they want to spend on equipment,” Swank says. “That’s normal.”

Big things ahead

Swank expects a healthy level of equipment demand to carry into 2020, as well.

“I have a tremendous amount of clients saying they want delivery in January-February-March,” he says. “I have not had this amount of demand early in the year saying ‘we’re going to need it, and we’re going to need it in the first quarter.’”

Armstrong, like Swank, maintains an optimistic attitude about next year, but new variables will enter the fold and potentially redirect capital spending to one of a number of places.

“On both sides of the border we have an election,” says Armstrong, referring to the United States and Canada. “The nice thing is that, regardless of your flavor for government, almost everyone believes in investment in infrastructure as a driver of the economy.”

---

Sentiments on 2019

“2019 seems much more planned and consistent. That may not lead to record revenue, but it’s still very strong. It’s a year you feel good to hang your hat on.”
Matthew Armstrong
Major

“I think buyers – both dealers and end users – are being cautious with their purchases. They’ve seen prices go up, largely due to tariffs, and we’re all still waiting for an infrastructure bill to be passed.”
Dave Stewart
Screen Machine Industries

“Overall I think it’s steady. I don’t think we’re setting any records in the sales department. The rentals are ahead but the sales are on par with last year.”
Mike Tormey
Emerald Equipment

“I’m cautiously optimistic for the remainder of this year and 2020.”
Mark Strader
Bramco-MPS