.comment-link {margin-left:.6em;}

Friday, July 22, 2005

Schuff International (SHFK) 2004 Annual Report

Schuff International (website) is...
a fully integrated fabricator and erector of structural steel and heavy steel plate. We fabricate and erect structural steel for commercial and industrial construction projects such as high- and low-rise buildings and office complexes, hotels and casinos, convention centers, sports arenas, shopping malls, hospitals, dams, bridges, mines, and power plants. We also manufacture short- and long-span joists, trusses, and girders as well as specialize in the fabrication and erection of large-diameter water pipe, water storage tanks, pollution control scrubbers, tunnel linners, pressure vessels, strainers, filters, separators, and a variety of customized products.
Mostly operate in Southwest and Southeast (AZ, NV, TX, FL, GA, south CA, CO).

Customers: Hunt Construction, Fluor Daniel, Bechtel, Perini Corp.


Jan 6, 2005, voluntarily went dark. They will continue to issue annual reports and other shareholder info.

They describe the sales process, project management, etc. in reasonable detail.
We believe that a key factor in our success has been our ability to provide valuable input and assistance to general contractors, engineering firms, and other customers with respect to overall project design of fabrication and erection sequences and other critical project decisions. This early-stage involvement often results in project cost savings and efficiencies and helps to solidify key customer relationships. In addition to our centralized project management, we use skilled erection employees local to projects and utilize advanced scheduling systems to enhance our project management services to customers.
In this business, you get a lot of "erection" jokes.
We have achieved a Level Three certification by the American Institute of Steel Construction (AISC) with respect to our fabrication operations, the highest level of certification available from AISC. In addition, our welding employees are certified in accordance with the American Society of Mechanical Engineers (ASME) Section IX, Non-Destructive Examination Inspector Certification to Society Non-Destructive Testing TC-IA Standards. We have developed project-specific and company-wide quality assurance and quality control programs, and utilize sophisticated X-ray and ultra-sonic systems to inspect weld seams. Substantially all joist manufacturing projects require companies to be members of the Steel Joist Institute (SJI). We are one of only 19 companies in North America that are members of the SJI.
Most projects are fixed price, not cost-plus or unit cost (payment for amount of steel shipped). Price and schedule are the primary factors for customers. Projects are generally 1 to 12 months. Bonding requirements (providing payment and performance bonds) gives them an advantage over small steel companies.

We believe that there is an increasing trend in the construction industry toward complex, fast-track, designbuild projects.... These projects require that all phases of construction be accomplished in accordance with compressed time schedules that involve us at early stages of the project.... These projects also are characterized by numerous design changes requiring that all construction participants coordinate their efforts in order to respond quickly and efficiently in implementing these changes.... We believe that we have gained a reputation in the industry as a reliable, fully integrated provider of design-build, engineering, detailing, fabrication and erection services with the ability to complete large, complex projects on a timely, cost-efficient basis.


I've decided this is not a good investment. No matter how good these people might be, they really have no pricing power. So the results of the last 5 years are probably typical of what to expect in the future. Earnings on average are going to be about 25 cents a share. The company is worth maybe $4. It's selling for about $3.50.

UPDATE: I noticed ValueInvestorsClub had a writeup on SHFK. Scott265 seems to believe it's worth $9.60.

UPDATE Aug 3: naughty Schuff answers to the SEC

i would caution you about 'pricing power'. In the construction industry, the moat or value added is their expertise to provide steel structure on cost on budget. While the commercial real estate cycle is robust, there is more demand than supply for performance. In the down cycle (ca. 1990), the cutthroat price auction can destroy value. So the value depends on the expertise of management to deliver on their projects (as quantified by their bonding cost), and stand aside, lay off business that is below their cost. (kinda like insurance) You're only as good as your last job.
Yeah, that's definitely the impression I get. They seems like they're probably pretty good at that, but when times get lousy, they'll be hurting either way. You can see it in their historical results.

Thanks for the comment!
lack of pricing power is correct,
however, you do get some markets where the subcontractors have more power than big contractors, i.e. specialized items or critical to cost or schedule. the big contractors view it as commodity, deal flow, but it ain't necessarily so. (requires specialized knowledge of industry)
some rollups have done well for a time (Tyco, comfort usa, limbach) but they have the tendancy to get overlevered and crashing & burning.
Post a Comment

<< Home

This page is powered by Blogger. Isn't yours?