AUBURN HILLS, Mich.—Unique Fabricating Inc. projects to save in excess $800,000 annually beginning in the third quarter as a result of its previously announced decisions to close two of its facilities.
The firm will be closing its sites in Port Huron, Mich., and Fort Smith, Ark., by the end of the second quarter. CEO John Weinhardt said on the firm's March 8 conference call to disclose its 2017 financials that the decision was made to further streamline operations, improve efficiency and better align Unique's production assets geographically to support future growth.
"The volumes weren't there to support keeping the plants open," Weinhardt said. "In both cases, the plants had originally been located where they were by the previous owners because of proximity to certain customers. Over time, that became less and less of an issue and less important in the overall decision. When we look at the business we were booking going forward, we have other facilities that are better located geographically to support the customers where we're going to experience the growth."
Combined, $8 million in production will be relocated and 27 employees will be impacted, all of whom will be provided severance and transition assistance.
"Both of these plants were part of companies that had been acquired, and both were relatively small compared to our other facilities," Weinhardt said. "So folding the production from these operations into other plants that are more strategically located has clear synergistic benefits."
Those benefits include combined savings that are projected to exceed $800,000 annually. Chief Financial Officer Thomas Tekiele said during the call that Unique expects to realize those savings in the third quarter, however they will be offset in 2018 from costs associated with the move during the first two quarters. Combined, those costs fall between $650,000 and about $1 million.
"There won't be a profound impact on the full-year 2018, but there should be in 2019," Weinhardt said.
The firm is taking a pre-tax hit of $50,000 to $150,000 in the first quarter for expenses related to severance and transition assistance for the seven employees at Port Huron. The facility produces precision die cut components and was part of its $21.8 million deal for Intasco Corp. completed in May 2016.
About $2 million in revenue is transferring to sites in Auburn Hills, Mich.; Louisville, Ky.; and London, Ontario. Tekiele said the firm will be taking an additional charge of $50,000 and $150,000 related to the relocation of equipment and other closing costs.
"With an expiring lease and available capacity in other facilities, we made the strategic decision to begin transferring production from Port Huron during the first quarter," Tekiele said.
Fort Smith, which employs 20 people, was acquired in Unique's $16 million deal for PrescoTech Industries Inc., which was completed in 2014. The deal expanded Unique's portfolio of die cut products for the automotive, appliance and commercial heating industries. About $6 million in production revenue will be relocated to sites in Evansville, Ind., and Monterrey, Mexico.
Tekiele said Unique plans to incur a charge of about $150,000 to $250,000 for severance and transition assistance in addition to a $400,000 to $500,000 charge for equipment relocation and other closing expenses. Once closed, Tekiele said Unique will try to sell the facility. The site currently carries a net book value of about $700,000.
It's the second former PrescoTech site Unique has closed since the deal. In 2015, it closed its plant in Murfreesboro, Tenn., affecting 30 employees. Louisville and Evansville are the remaining sites from the PrescoTech deal.
"Decisions like these that affect our employees are never easy to make," Tekiele said. "However, the consolidation of both facilities further streamlines our operations and better aligns our assets and resources geographically with our expectations for future production volumes."
Financially, Unique reported growth for 2017—sales increasing by 2.8 percent to $175.3 million, driven primarily by its acquisition of Intasco. Net income dropped slightly to $6.5 million from $6.7 million in 2016. The firm said as of Dec. 31, it had about $7.2 million of available unused capacity with $1.4 million in cash and equivalents, the latter an increase compared to $706,000 at the end of 2016.
For the quarter, Unique's sales dropped 4.6 percent to $41.7 million, driven by a decline in North American auto production of 5 percent compared to the fourth quarter of 2016. Its net income, however, increased to $2.1 million compared to $1.7 million thanks to an income tax benefit of $700,000 from President Trump's tax reform law.
"We executed well during the fourth quarter, delivering results that were in line with our expectations and on course for growth and increasing profitability in 2018 despite short term disruptions and reductions in industry production during 2017," Weinhardt said, adding that automotive production declined by 4.3 percent for the full year.
"Our ability to adjust and shift capacity to align with customer's production activities was important to sustaining our gross margin in the fourth quarter and achieving our full-year financial guidance."