AirBoss counts on diversity for growth in second half

NEWMARKET, Ontario—It pays to be diverse.

That's certainly one reason AirBoss of America Corp. isn't dealing with a lot of red ink as it moves past the mid-point of 2014 and into what the company hopes will be a strong second half.

Just eight months ago, the company was primarily a rubber compounder and a manufacturer of a variety of engineered products, including defense, first response and industrial goods.

It purchased Flexible Products Co. for about $51 million in October 2013 to give the firm a new growth platform and move it into the automotive anti-vibration products field. That instantly changed the profile of the company.

When two of its key segments suffered a drop in sales, the sting was not nearly as bad as it would have been without the acquisition and organic growth in other areas.

Initiatives the firm has in place—including plans to expand globally, building its product line, growing organically via new technology and possibly making an acquisition or two—also helped.

The bottom line is to grow, spread the company's base and make a profit, President Timothy Toppen said in a recent interview.

It successfully navigated a difficult fourth quarter in 2013 with virtually no damage done to post good revenues and earnings numbers in the first quarter of 2014, even with a sales slide in its mining and defense products markets.

Overall, the firm recorded sales of $71.4 million, 31 percent higher than last year's first quarter, while net income came in at $2.4 million, up slightly from $2 million in the 2013 period.

Rubber compounding revenue dipped by $4 million compared to the same period in 2013 because of a difficult winter and a drop in demand in the conveyor belt sector that serves the floundering mining industry.

Sales of overshoes in the defense sector fell $3.7 million partially because of constraints within the U.S. Department of Defense budget, while military glove revenues decreased by $1 million. Industrial product sales fell by $1.4 million, primarily because of decreases in military tire and fire boot demand.

The inclusion of Flexible Products' revenue helped offset declines in other segments and boost sales in the first quarter by $17 million.

Becoming more diverse is something the company has been trying to do for some time. “We have diversified away from mining—although mining will remain a big part of our business—and we will continue to do so. It's important that we broaden our customer base,” Toppen said.

AirBoss bought Flexible Products because the Newmarket-based firm believes it fit well with what the company is trying to do and it creates a new avenue for growth, he said.

“It's a solid investment, as good as you'll find,” Toppen said. “The full benefit of the acquisition has not been realized yet.” The former owners of the business, which has been renamed AirBoss Flexible Products, did a good job of growing the operation, he said.

Located in Auburn Hills, Mich., near major auto manufacturers, AirBoss Flexible Products has easy access to top tier customers. It gives AirBoss greater product diversification, geographic expansion and an opportunity for market growth, said GMP Securities L.P., a Toronto-headquartered investment firm that follows AirBoss in the market.

Adding the business to its fold “opens up global opportunities to expand our footprint around the world. It gives us a great platform to build our business,” said Toppen, who noted that the acquired operation was built to react quickly with its technical expertise.

The acquisition has made a decent contribution to AirBoss' sales and earnings thus far, he said, but the full impact won't be felt until year end.

AirBoss also is leveraging its technology and engineering expertise to become more cost effective and improve the company's margins through operational efficiencies, Toppen said.

For example, he said the firm is working hard to improve its operating margin by centralizing its raw materials purchasing operation to cut costs while standardizing, improving its manufacturing processes and leveraging its manufacturing resources.

It is also extending its reach.

In the past, the company primarily was considered a North American business. Not anymore. That's partially because of the addition of Flexible Products, which has a bigger global base than AirBoss, and because of the company's efforts to branch out with its engineered products, principally those that fall into the defense and first response sector.

AirBoss' defense/first response operation specializes in hand, foot and respiratory protective wear along with chemical, biological, radiological and nuclear protective gear.

To further bolster the business, the company is in the midst of developing a variety of new products, including a low burden glove, a carbon monolith filter for gas masks “that could be a game changer,” and a low burden mask, which makes it easier to breath, Toppen said.

Long term, he said, the greatest opportunities for the company lie with new products under development.

The new glove concept is advancing, “but we are maybe a year out from industrialization, and some design changes could occur,” according to Earl Laurie, president of AirBoss Defense, which will produce the products. The company is building prototype tooling now to mold the product, he said.

It should provide similar che-mical warfare -pro-tection as the firm's current glove but will add fabric laminates to certain areas that will improve comfort and reduce heat burden, he said, adding that it will meet the NFPA 1994 standard and will feature improved flame and oil resistance compared to AirBoss' current offering.

AirBoss' lightweight low burden mask is expected to be in production in 2015. It will use traditional filters for the time being, Laurie said, but eventually will switch to the monolith filters, which the company is hopeful will be available in 2016 or 2017, if all goes well.

The mask has a low breathing resistant valve system that can drain sweat and moisture from the mask and an anti-distortion, anti-fog, ballistic protective visor, among other features.

It's still early in the planning stages for the monolith filters, which should really be called self-supporting carbon filters, he said. “If successful, this is a platform technology that could have applications beyond the gas mask itself.

The company, which makes a full range of firefighter boots—including the first CBRN fire boot—is using some of it newest technology to move deeper into the first response and security markets.

It has developed an injection molded over-boot that's produced at the firm's Vermont plant, which down the road should put the company in a good position when the defense end of the market turns around. The boot is cheaper to produce than the manually produced boot, which AirBoss also produces.

AirBoss' compounding operation has moved into the off-the-road retread tire market, the tire sector and automotive as it expands its reach in the rubber mixing segment. And it's building a solid base in the oil and gas market with new compounds, Toppen said.

The company recently signed a pact with Green Arc Tire Manufacturing, calling for AirBoss to produce up to 24 million pounds of rubber compound annually for the production of eco tires. That should also help offset some mining industry losses this year.

Green Arc plans to open a $37 million plant in St. Mary's, Ontario, located near AirBoss' Kitchener, Ontario, compounding facility.

AirBoss also has upgraded its rubber mixing and product manufacturing operation in North Carolina, where it has facilities in Wake Forest and Scotland Neck. “There's a host of opportunities in the Southeast,” Toppen said, “so it's a good place for us to be.”