WASHINGTON – If you want a grim statistic on America’s economic health, look at capacity utilization. A measure of the usage of the nation’s factories, mines and utilities, capacity utilization has dropped 10% since April 2000 and now sits at a 20-year low of 72%..
Despite the slack capacity numbers, some businesses have been ramping up over the past few years by increasing their capital investment and steadily adding to property, plant and equipment. It’s a risky bet, to be sure, but it may well look smart when the economy improves.
Example: American Woodmark, a manufacturer of kitchen cabinets with $499 million in revenue. For the latest 12 months, American Woodmark’s capital spending stands at $45 million, up from $23 million for the comparable period a year ago. On a five-year annualized basis, the company’s capital expenditures have risen 54%. The money has gone to projects such expanding assembly and finishing capacity at plants in five states.
Yet even with the capital-investment drive, American Woodmark has managed to keep its free cash flow (net income less capital expenditures plus depreciation) in positive territory. As its capital expenses fall, that free cash flow will likely get a boost, giving the company the flexibility to repurchase shares or pay down its modest $19 million in long-term debt.
So far, American Woodmark’s expansion has had mixed results. Profits have climbed from $4 million in fiscal 1996 to $32.2 million for the firm’s fiscal year ended April 2002. But year-over-year quarterly net margins have slipped from 6.2% to 4.9%. Shares have dipped accordingly–the stock trades 30% off its 52-week high.
Full story at Forbes.com
Posted by Gillies on May 21, 2003
“We’re going to hit Dow 40,000 by 2016,” says money manager David Elias without blinking. It is not the first time he’s said it, either. Dow 40,000 was the theme and in the titles of his two books published in 1999 and 2000.Reviewers said they were a signal of a stock market about to go pop.
This time Elias’ call is all the more gutsy, flying in the face of greatly diminished expectations for stocks. The prediction is also more of a reach statistically. To get to 40,000 by December 2016 from where we are now, the Dow would have to sustain an annualized price gain of 13%. Starting from December 1999′s 11,400 level, it would have had to trot along at only 7.7%. To get a sense of how wildly bullish 13% is, note that over the past 100 years the index has climbed at a 5% rate.
And now we are contending with terrorism, volatile oil prices, high levels of corporate, government and personal debt, and a sluggish world economy. Mere mud on the hooves of history to Elias: “Over the last century we’ve had depression, recessions, the World Wars, all sorts of conflicts and tragedies,” he says, “and yet look at the long-term trend of the stock market. It’s up.”
Full story (reg. required) at Forbes.com
Posted by Gillies on May 12, 2003
WASHINGTON – The road and transportation industry is already rolling its heavy equipment into town to lobby for the reauthorization of the Transportation Equity Act for the 21st Century, which is set to expire this September.
The law authorizes the U.S. federal government’s 45% share–now $38.8 billion a year–of all capital spending on highways and mass transit. But the industry wants more.
Some background: When the transportation act, known as TEA-21, was enacted in 1998, it tied spending levels to revenue collected by the government from highway user fees (various taxes on fuels, tires and so on) and credited to the highway account of the Highway Trust Fund. At the time, this was considered a victory for the highway lobby, since Congress had been allowing unspent money to accumulate in the Trust Fund to make the federal budget deficit look smaller. After TEA-21, the federal government spent what it collected.
But in 1999, just a year after TEA-21 went into effect, the American Road and Transportation Builders Association (ARTBA) began preparing for their next offensive. Those preparations have gotten intense. Last week, ARTBA, along with the Associated General Contractors of America, held a legislative “fly-in”: 500 people signed up, representing 28 construction and building associations and union groups.
Fanning out on Capitol Hill, those groups carried the standard of one of ARTBA’s primary goals: to move TEA-21 from a receipts-driven, “revenue in/spending out” setup toward more of a needs-driven approach. What that means is the road builders want spending determined by various assessments from the Department of Transportation and others of what’s needed to maintain and improve the transportation infrastructure in the U.S. If receipts coming into the Highway Trust Fund fall short of those needs, the lobby argues Congress should close the gap.
Highway and transit builders have a strong reason to want to focus on needs rather than receipts. Starting in 2002, receipts from user fees began to drop significantly, thanks largely to the impact of a slower economy and increased sales of gasahol, an Ethanol-based fuel that isn’t taxed for the Highway Trust Fund and is heavily subsidized–thanks to the farm lobby and the efforts of Archer Daniels Midland.
Full story at Forbes.com
Posted by Gillies on May 7, 2003