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TWST: What is Hawk?
Mr. Levanduski: Hawk is a leading provider of friction products and
powder metal precision components that serve diverse industrial markets
such as construction and mining, aerospace, heavy truck and agriculture.
We were formed in 1989. Two gentlemen, Ron Weinberg, who is the
Chairman, CEO, and President of the company, and his partner, Norman
Harbert, formed the company in 1989 with the initial acquisition of a
company just outside of Cleveland in Medina, Ohio, called Friction
Products Company. The company primarily serviced the aerospace market
back then. At that time, the company had about $19 million in revenue,
with about 70 employees. For 2006, our current guidance is for revenue
of $290 to $300 million, and we have about 1,800 employees worldwide.
The company grew largely in the late 1990s through acquisitions. We did
a number of acquisitions, both in the friction material space as well as
in the precision component powder metal area. We also have a third
segment, the racing segment, which is a much smaller part of our
business doing about 6%-7% of our overall revenue providing
transmissions and clutches for the high-end racing world, specifically
NASCAR. In 1998, we went public. We always had an institutional flavor
to us since our inception; even at the beginning when we were private,
we always had institutions involved with the company. So we have always
acted as a publicly traded company. In 1995, when we did the acquisition
of S.K. Wellman Corporation, which more than doubled the size of the
company, it branched us into the international world with friction
facilities in Italy and Canada. We created facilities in China. We have
a wholly owned foreign entity there right now that comprises two
separate operating facilities, one for Friction Products and the other
for Precision Components. We are actually starting construction of a
third facility that will be ready for us in mid-2007. The company
itself has a very strong niche. We are very much a technology-driven
organization, both in terms of our products and the equipment that we
use. We have what we consider a very strong global footprint for a
company of our size, and we are really focusing right now on a direct
aftermarket position. To give you a little sense of what the important
characteristics of our company are, 80% of our sales are derived from
specific sole-sourced applications, which means that we may not be the
sole friction supplier to a customer, but once we get engineered on that
aircraft or on that piece of construction equipment, we are pretty much
there on that platform for the life of that application. So it gives us
a strong stickiness. Roughly 30% of our sales are generated from the
stable OEM and direct aftermarket. Because our friction material is a
wearable component, many of our customers control their aftermarket, and
we respect their aftermarket. On the direct side, we do go after other
industrials ' where we may not have an OEM platform, we will attack
their aftermarket directly. We also service the direct aftermarket
through fleets. We recently became a certified provider to the FedEx
fleet. We service the military. We just signed a five-year contract to
provide all the brakes for the military Humvee. We also service a
performance automotive base through Pep Boys and through our racing
distribution network. We have a very strong brand image in the racing
world; we are the official brake pad of the Sports Car Club of America,
which is 60,000 plus member organization. We have a very strong
relationship with our customers and work very hard to sell at all levels
within these organizations. We have a list of some very strong blue chip
names in our customer base that have been with us for 20 plus years.
Some of our earlier customers date back to the 1950s. So the customers
are names like Caterpillar, which is our largest customer; Eaton, which
is also headquartered here in Cleveland, where we provide materials for
Class 8 truck clutch applications; with CNH and John Deere, in the
agriculture market, and Goodrich and Aircraft Braking System parent
company is K&F), where we provide friction materials that go onto
braking systems for the commercial airline industry. The one thing that
I think is very important for people to understand is we do not provide
friction materials or powder metal components to the OE automotive
makers. We do provide some second-tier components for the automotive
sector, but strategically, we have focused on the technology-driven
industrial markets. So construction and mining is actually our largest
market, which is a very diversified pie chart in general, and that has
been very, very strong in the last few years, and we expect that market
to continue to be strong. Class 8 trucks and aerospace are each about
10% of our pie chart. On the powdered metal side, fluid power is one of
our largest markets, along with the lawn/garden sector. So we have done
very well in terms of diversifying ourselves, which protects us from
some of the cycles. I think we have set ourselves up to be a very strong
niche player. The organization as a whole is a very strong value-driven
organization. Our management team, including the two Founders, executive
staff, and Board members, collectively own about 32% of our common
shares. So shareholder value is something that is near and dear to our
heart. Last year, we shut down one of our older facilities here in the
Ohio area, which was a 113,000-square foot facility. We transitioned
this work into a newly constructed 240,000-square foot facility in
Tulsa, Oklahoma, giving us significant room to grow our friction
business. We are still ramping up production in this facility, but the
facility achieved positive EBITDA in the second quarter of 2006. Our
top-line growth has been very strong over the last several years; 2005
had the organization set a record with $265 million in revenue despite
the disruption of shutting down and moving a facility. North America is
a very strong market for us, but we are positioned well globally. The
transition of the facility from Ohio to Oklahoma impacted our financial
results in 2005 and early 2006, but we just reported our earnings, where
we had announced that our Tulsa facility had broken profitability in the
second quarter of this year. This expansion in Oklahoma gives us plenty
of capacity space to continue our growth strategy. Our top line growth
has been growing thanks to the general economic climate, but also
through a concerted effort to gain market share and introduce new
technology to the market place. Top line growth has been very strong
recently, and I think we are poised to have a very good year, as our
guidance dictates.
Tickers included in this excerpt: HWK
For more information call (212) 952 7433. The
Wall Street Transcript does not endorse any of the comments made by interviewees, and does
not make stock recommendations.
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