Zero No Mere Cipher in Electronics Packaging : Burbank Firm’s Special Aluminum ‘Boxes’ Contain Recipe for Solid Growth
Nobody can accuse the Zero Corp. of being flashy. Its Burbank headquarters is unassuming, its products are obscure and its name--well, let’s just say it’s unpretentious.
On the other hand, if profit is the goal of business, Zero is downright thrilling. The company’s net income has grown every year for the last 13 years, and dividends have risen for the past 10. Its balance sheet shines.
“Essentially, this is one of those sweetheart companies that manages to improve on the previous year’s performance like clockwork,” David Liebowitz, a senior vice president with American Securities in New York, said admiringly.
These results come from a company that mainly makes boxes. But they’re special boxes, made of aluminum in a process called “deep drawing,” in which a metal sheet is subjected to enough pressure to make its molecules flow into the shape of a box. No stretching, and so, no weakness. Also, there are no seams.
Widely Used
Zero’s boxes are widely used for electronics products, computers and other sensitive high-tech equipment, the proliferation of which has helped fuel the company’s success. Analysts say that Zero is also well-managed, with an after-tax profit margin of about 10%.
What’s more, Zero’s business is more stable than that of its clients.
“The packaging changes much more slowly than the innards,” said Wilford D. Godbold Jr., 47, Zero’s president.
Godbold is an attorney who left the Los Angeles law firm of Gibson Dunn & Crutcher three years ago to run Zero. At Gibson Dunn, he was a merger and acquisitions specialist, and Zero has grown during his tenure partly through cautious purchases.
Acquired 8 Firms
Since he joined Zero, the company has acquired eight smaller firms for a total of more than $20 million in a program of modest diversification. Still, it has never wandered far from the electronics business.
The most recent purchase was on Aug. 30, when Zero acquired Contempo Engineering Co. of Glendale for an undisclosed price. Contempo, with sales of $7 million a year, makes air-conditioning systems for computer installations. Zero already makes blowers for some electronic equipment, so it considered Contempo a complementary business, Godbold said.
Then last week, Zero announced the sale of its 40% stake in Burbank-based Ocean Technology Inc., a Navy signal and engineering company, for $11 million. Zero said the sale would help it concentrate on expanding in the electronics-enclosure business.
Zero still has about $20 million in liquid, short-term investments to bankroll acquisitions. And more purchases are likely, Godbold said, since the company is always looking for entrepreneurial businesses that fill a niche in a field related to Zero’s.
No Research
“We will spend money for product enhancement, but we will not do research and development for new products,” Godbold said. “We find the risks too high in R and D.”
Zero is cautious in other ways, he said. “We don’t want to hit home runs, we want to hit singles and doubles and not strike out.”
Analysts say caution has worked for Zero, and its financial results bear that out. For the fiscal year ended March 31, the company earned $11.5 million, up 16% from the year before. Sales were up 25%, to $117.2 million. For the first quarter ended June 30, earnings were up 4% and sales rose 10%. Zero’s financial results aren’t the only flashy thing about the company, however. It also makes trendy Zero Halliburton luggage, a high-priced line of silver-colored aluminum travel cases made by the same deep-drawing process used in its box fabrication. The Zero Halliburton briefcase retails for about $350.
‘Weighs a Ton’
“It weighs a ton,” said Stanley Lanzert, an analyst with the Drexel Burnham Lambert securities firm in New York, who says he likes the company anyway.
Heavy or not, the luggage is popular, now accounting for between 5% and 10% of the company’s business. It stems largely from the Zero Halliburton camera case, long popular with photographers. The line also includes cases for cellular mobile telephones.
Zero cases are considered highly reliable for protecting delicate, valuable equipment. A Zero case was used to bring back some moon rocks from the first lunar landing in 1969.
About 37% of Zero’s business comes from the military, almost entirely as a subcontractor, and that part of the business has done well lately. With the slump in the computer business, Zero’s units supplying that field, including a subsidiary making quiet boxes for computer printers, have done less well.
Edge in Market
The electronics industry remains Zero’s biggest market. The company now boasts 187 of the nation’s top 200 electronics companies among its customers, and, Godbold says, Zero controls 85% of the market for deep-drawing aluminum boxes.
“Zero is a generic term like Kleenex or Xerox in deep-drawn cases,” said Robert Pearl of Wolcott Research, a stock-research firm in New York.
Zero’s entrenchment is so complete, in fact, that designers of electronics equipment often build their products to fit into one of Zero’s 1,700 basic shapes, which can accommodate 40,000 sizes. It’s cheaper than having Zero make a box to order.
According to Pearl, the molds that Zero uses to make those basic shapes are a major reason that Zero has such a hold on the business. Pearl estimated that the molds are worth $10 million and that anyone who hoped to compete would first have to make a similar investment.
16 Facilities
Zero and its subsidiaries have 16 facilities in the United States and England. The firm employs about 1,800 workers worldwide, including 450 in Burbank and perhaps another 200 elsewhere in Southern California.
And why is the company called Zero? The company traces its roots to a sheet metal business founded by a German immigrant named Herman Zierold. People mispronounced the name as Zero, and when entrepreneur Jack Gilbert, who remains the company’s chairman, bought the business in 1952, he adopted that name.
