Surveying Signs of Recovery at Southland Industrial Firms

Some Southland-based manufacturers are seeing the first signs of recovery from the recession as orders begin to rise.

The evidence still is spotty, but the trend is nonetheless an important symbol of hope for the many industrial companies, large and small, that populate greater Los Angeles.

And for the Southland’s biggest industrials, recovery hopes also give their shareholders a reason to hang on. Most of the stocks are trading far below their highs of recent years as Wall Street continues to doubt the profit prospects of manufacturers in general.

That attitude could change by fall if the turnaround in orders continues. How the recovery is trickling into the Southland so far:

* Riverside-based Fleetwood Enterprises, the nation’s leading maker of recreational vehicles and manufactured housing, is seeing “gradual improvement” in orders for many of its lines, says Paul Bingham, financial vice president.

Sales of towable travel trailers and folding trailers were up 19% in the quarter ended July 31, Bingham said. And though sales of motor homes were down 3%, “they were getting stronger as we ended July, and that has continued into August,” he said. Only manufactured housing is weak: Sales remain just on par with last year.

Overall, the company’s sales grew 2% to $398 million in the recent quarter. Although that may not seem like much, sales had been off 11% in the spring quarter and were down a disastrous 20% last winter. The improvement has been enough to allow Fleetwood to call back workers this year, boosting national employment from 10,000 in January to about 11,000 now, Bingham said. About 25% of the work force is in the Southland.

* Executives at Bell Industries believe that someone must be doing more business with California’s print shops: Bell’s sales of graphic arts supplies and other goods to the printing trade jumped 16% in July and are up 12% this month.

Likewise, the Los Angeles firm’s nationwide electronics-distribution sales (semiconductors, power supplies, etc.) have been up for four straight months, says Bruce Jaffe, executive vice president. Bell is mostly a distributor and as such is a bellwether for final demand.

Yet, despite the turnaround in some markets, Jaffe doubts that the recession is over. “We don’t really think so,” he says, noting that Bell’s building-products distribution business remains severely depressed; sales have been off 19% to 30% in each of the last four months.

* Frank Perna, chief executive of L.A.-based MagneTek, says the manufacturer of electrical equipment appears to have reached “bottom” in some of its more troubled markets, such as residential housing. Orders for electric motors and other products used in ventilation equipment, for example, have been encouraging in recent months.

But he also admits that “it’s hard to take the ‘heat factor’ out of it”: The better order trend for ventilation equipment may stem from persistent heat waves in many parts of the country this summer rather than from a pronounced turn in the construction business, Perna says.

What’s more, orders remain depressed in some key areas, such as automobile-related products. “We haven’t seen that come back yet,” Perna says.

* Employees of Laguna Niguel-based Furon Co. are also waiting for orders to come back from the auto industry and from many others. Furon makes rubber and plastic parts and sealants for businesses as diverse as autos, electronics, oil-exploration and aerospace. Chief Executive Michael Hagan says orders in the quarter ended July 31 were the lowest in the past 10 quarters.

Even so, he says, “I think we’ve stabilized. . . . Some of our customers are saying things will turn around in the fall.”

On Wall Street, skepticism about stocks of industrial companies is still thick. Even when signs of economic strength boost the stocks, the rally usually lasts no more than a day.

Dale Tills, trader with brokerage Charles Schwab & Co. in San Francisco, says there’s no real conviction that the economy can avoid falling into recession again soon. “That’s why there’s no follow-through” on industrial stocks, he says.

But if the early signs of recovery at companies such as Fleetwood and Bell Industries are any harbinger, worries about a double-dip recession may be overblown. At the very least, this is a great time for investors to start shopping for unloved industrial firms that hold promise for 1992--because a recovery will come by then.

Southland investors, in particular, must remember to keep pessimism about the regional economy from skewing stock decisions about local firms that operate nationwide. L.A. as a whole will have a much tougher time than most regions emerging from recession, but many industrial firms based here may come out of the downturn quickly, because their customers are all over the map.

Why bother looking at local industrials? You may be surprised at what you’ll find. MagneTek, for example, managed to post record earnings of $1.47 a share in the year ended June 30, despite the recession. The stock is being held back by worries over a pending trial involving an old acquisition, but the company nonetheless has very interesting long-term potential. MagneTek has a strong niche in manufacturing electric transformers for the utility industry, which must rebuild its power grid regardless of economic cycles.

Superior Industries, a Van Nuys-based producer of aluminum road wheels for the auto industry, is gaining market share at the expense of rivals. That should mean record sales and earnings in the current quarter, even with the continuing auto sales slump, says Jeffrey Ornstein, vice president for finance. (Wall Street, in fact, has recently caught on to Superior’s story, boosting the stock from $17.125 earlier this year to $28.875 now.)

Furon has slashed its debt load by two-thirds since 1989 and continues to find ways to do more with fewer people, Hagan says. If demand returns, and earnings approach the $1.52 a share Furon earned in 1989, its stock will look dirt-cheap: At $11.50 a share now, the stock trades for less than eight times that peak earnings figure.

That’s not to suggest that every industrial stock is guaranteed to return to its all-time high price, even if the economy booms. But if you realize how much investors were willing to pay for these stocks the last time business was good, you can see how today’s prices still leave a lot of room for profit when the recovery finally kicks into gear.

Southland Cyclicals Is there a recovery looming for cyclical industrial companies? Maybe--but the stock market doesn’t believe it for many of the major Southland-based industrials listed here. Stocks of most of these firms remain well below their peaks of prior years.

Stock peak: Tues. Peak Stock Year Price close to now P-E* Avery Dennison 1989 33 1/4 23 3/8 -30% 17 Bell Industries 1983 32 5/8 10 1/4 -69% 86 CIMCO Inc. 1990 16 8 3/4 -45% 10 Farr Co. 1990 16 1/4 10 3/4 -34% -- Fleetwood Enterprises 1983 41 7/8 33 1/8 -21% 24 Furon Co. 1990 19 11 1/2 -39% 13 MagneTek 1991 16 1/4 13 3/8 -18% 9 Superior Industries 1991 29 28 7/8 nil 26 Wahlco Environmental 1990 16 5/8 13 1/2 -19% 29

* stock price-to-earnings ratio based on trailing 12 months’ earnings per share.

All stocks trade on NYSE except CIMCO, Farr and Furon (NASDAQ).