TransTechnology Suffers in Changing Marketplace : Restructuring: The highly diversified Sherman Oaks firm struggles to find its way amid the recession and the slowdown in defense spending.
TransTechnology Corp. makes an amalgam of aerospace, computer and industrial products, ranging from rescue hoists and missile cables to bank-check processors, weather instruments and crane accessories. In other words, it’s a small conglomerate with a stake in defense-related markets.
Talk about fighting an uphill battle.
Those corporate attributes are largely out of favor with investors these days, what with conglomerates having become passe in favor of companies with “synergistic,” or related, divisions, and with defense spending slowing. TransTechnology is no exception, and its stock has lost 75% of its value over the past two years.
TransTechnology’s performance--further hindered by the economic recession--hasn’t helped matters. The company, whose fiscal year ends March 31, lost a combined $12.4 million in fiscal 1990 and 1991, including a $4-million loss on revenue of $186.4 million in the most recent year.
Even TransTechnology President Ralph E. Hutchins said that “when you look at the general state of the economy and Defense Department planning, you have to say” the company’s corporate structure “doesn’t make sense.”
What to do? TransTechnology has sold a couple of divisions, consolidated some others and tried overall to contain costs. Last February it also hired an investment firm led by Los Angeles lawyer and investor Richard J. Riordan to suggest more ways to boost the company’s value--which undoubtedly will include the sale or closure of more operations.
But since then no decisive action has been taken, and it was clear at TransTechnology’s annual meeting earlier this month that its investors are getting restless. Hutchins admitted that despite having the investment firm’s recommendations, “we have not pursued them in as timely a manner as we should have.”
“The shareholders are impatient and would like to see something happen, and quickly,” said Michael J. Berthelot, an Ohio accountant and investor who has amassed a 5.3% stake in TransTechnology.
The stock closed Monday at $7.375 a share in New York Stock Exchange composite trading. At that price, the stock is trading at about half TransTechnology’s $14-a-share book value--that is, the company’s assets minus its debts, or net worth. The stock also is well below the high of $20 a share it reached two years ago.
As a result, TransTechnology’s shares aren’t widely followed on Wall Street. “We gave up on that one,” said one research analyst, who asked not to be identified.
But Berthelot is emerging as the person who is sparking TransTechnology to action. In addition to joining TransTechnology’s board, he was recently named by the company’s directors to the newly created post of vice chairman, and he’s been commuting between Sherman Oaks and Hudson, Ohio, where the 41-year-old Berthelot runs an investment firm called Canterbury Holdings Corp.
“I would characterize his role as being a catalyst for change,” Hutchins said.
Berthelot will be making decisions with Hutchins, 53, and Arch Scurlock, 71, who’s been Trans-Technology’s chairman for the past 21 years and who spearheaded its diversification efforts. Scurlock’s recent illness--he had open-heart surgery in July--did not help the company’s effort to quickly restructure, Berthelot said. (Scurlock is recovering but was not available for comment.)
Still, TransTechnology’s board last week formed a committee, also led by Riordan, that will decide what TransTechnology should do to boost its performance. The panel is expected to report back to the board within 45 days.
Berthelot said every part of TransTechnology is being evaluated for possible changes. “There are no sacred cows,” he said. “We’re going top to bottom through the company and will decide which pieces make the best fit in terms of our long-term strategy and which pieces need to be sold.”
He added that the company “needs to refocus itself,” since its various operations--spread over 18 facilities and employing a total of 1,630--have little in common and don’t provide for economies of scale that could increase profits.
In addition, none of TransTechnology’s three major product divisions--aerospace, advanced technology and industrial--are showing appreciable strength on their own.
In fiscal 1991 the company’s Breeze-Eastern division (which makes hoists, hooks and winches) had an unspecified loss. Lower earnings were posted by its Technical Center division, whose defense products such as chaff--the metalized glass-fiber products that military aircraft drop to fool enemy radar--were in less demand.
TransTechnology’s financial-systems unit, which makes the check readers/sorters, merely broke even last year, although last month its Lundy Financial Systems arm got a $2.6-million order from Bell Canada. TransTechnology’s tear-gas and textile-finishing machinery units also suffered losses. Among the brighter spots were its electronics and computer-graphics operations.
The company has also made strides in cutting its bank debt, which now stands at less than $6 million, down from $32 million in March, 1990. Nonetheless, some of the stock researchers that still follow the company--such as the Value Line Investment Survey--assert that the overall value of TransTechnology’s assets remains relatively weak.
TransTechnology Corp. at a Glance TransTechnology Corp. is a diversified manufacturer of aerospace, data-processing and industrial products, ranging from missile cables to automatic bank-check readers / sorters. The Sherman Oaks-based company derives about 18% of its sales from the Pentagon and other U.S. government agencies.