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A. M. Castle & Co. Announces Plan to Reduce Costs and Improve Performance

01/17/2013 - A. M. Castle & Co., a global distributor of specialty metal and plastic products, value-added services and supply chain solutions, announced restructuring actions, including an organizational restructuring, warehouse realignments and performance improvement programs.

A. M. Castle & Co., a global distributor of specialty metal and plastic products, value-added services and supply chain solutions, announced restructuring actions, including an organizational restructuring, warehouse realignments and performance improvement programs. The measures are expected to improve annualized operating profit by $33 million once fully implemented in 2013 and will position the company for greater sales and earnings growth.
"This broad, performance-enhancing plan will enable us to better serve Castle Metals' customers by organizing our operations around them and their needs," said Scott Dolan, president and CEO. "Our goals are to simplify how we do business, optimize inventory levels, reduce waste, and improve on-time performance, which we expect will help us increase revenue while reducing costs. It is a critical step in improving our operating results, positioning Castle for greater long-term growth and creating increased value for our shareholders."
The company's restructuring program for its metals business comprises streamlining its commercial unit and sales force structure, realigning its branch fulfillment network, and implementing a continuous improvement program across the enterprise.
Organizational Restructuring
The organizational restructuring will eliminate the current decentralized commercial unit structure. Instead of three independent commercial units that include sales, operations, procurement and other support functions, Castle will centralize the support functions, and dedicate three vertical sales teams. Those sales teams will each be led by a vice president and will provide specialized expertise to customers in Castle Metals' Aerospace, Oil & Gas, and Industrial markets.
The vertical market sales structure will better position the company to develop topline revenue growth by focusing on customers and their global metals needs, while eliminating the redundancies of the commercial unit structure. Castle Metals will create a new position of Chief Commercial Officer, who will oversee the vertical sales team, leveraging best practices across industries and executing the go-to-market strategy for the company as a whole. The company is implementing several changes to its 2013 compensation programs to align with the new operating plans, including a new sales incentive plan.
The company is centralizing the management of its fulfillment operations. Functional groups for procurement, operations, human resources, finance and information technology from the former Commercial Units will be consolidated to provide centralized operational support for the vertical sales teams.
Facility Realignment
As part of its branch fulfillment network realignment, Castle Metals plans to consolidate five warehouse facilities into the existing network. The company currently operates 30 metals segment branches in North America, Europe and Asia, which include warehousing, sales, product processing and other operations. Castle Metals will maintain local sales offices to continue serving customers seamlessly in the markets in which it plans to close warehouses.
Performance Improvement
Performance improvement efforts will include implementing a continuous performance improvement program focused on direct and indirect sourcing, transportation, strategic pricing initiatives, back office functions, and optimizing inventory investment.
The restructuring actions are expected to generate $20 million of operating profit improvement in calendar year 2013 excluding related charges. The total pre-tax charge associated with these actions is expected to be approximately $10 million, which will be incurred in 2013, resulting in $10 million of operating profit improvement for 2013. These actions result in $33 million of annualized ongoing operating profit improvement. The restructuring will reduce the Company's workforce by about 10 percent.
In implementing its restructuring plan, the company aims to achieve the following results:
  • Improve operating margins, with a goal of 10%+ operating profit during normal market conditions.
  • Reduce operating expenses as a percentage of sales to less than 20 percent by the end of 2014.
  • Reduce Days Sales Inventory (DSI) to less than 150 by 2013 and 120 by 2014.
  • Continue to improve on-time delivery performance.
"We believe that the operating and financial targets that we have established are achievable, and we believe that the three end-markets we target offer attractive long-term growth potential. By delivering value-add solutions to our customers, we plan to grow our share of business with them. Our entire organization will be focused on implementing this plan," Dolan said.
Dolan added, "In terms of sales activity and recent market trends, we experienced softness in demand that was greater than anticipated during the fourth quarter, as well as lower activity levels due to extended seasonal shutdowns. In addition, the monthly Purchasing Managers Index (PMI) trends for the fourth quarter were consistent with third quarter levels, including a November 2012reading that was below the 50.0 expansion level."
Dolan concluded, "We are forecasting that the overall business conditions we experienced in the fourth quarter will continue, and we believe strongly that the actions we are taking will position the Company to operate successfully through all market cycles."