Investor Relations
Letters to Shareholders
2003 Letter to Shareholders
The general economic environment in the U.S. showed some improvement in 2003, and this positively impacted our business. Retail sales increased over the prior year and strong housing demand continued in the South, outweighing sluggish demand in the Northeast. Further, the market for capital goods also showed some modest growth. Factors outside of the U.S., however, partially offset some of these beneficial trends. The strengthening of the Japanese yen and the euro increased the cost of imported products. Moreover, at the end of 2003, we began to experience an extraordinary increase in the cost of steel, aluminum and other products predominately comprised of steel. We expect these increases to impact each of our business segments differently during the upcoming year. Wherever possible, however, we will attempt to pass these cost increases along to our customers, as well as to improve internal efficiencies in order to maintain our overall margins.
At Florida Pneumatic, we enjoyed another strong year in promotional sales at our two largest accounts, both retail customers. In addition, sales in our automotive segment grew by 167%. Late in 2003, we were disappointed to learn, however, that our third largest account would be sourcing product from another vendor in 2004. Although this was one of our oldest relationships, meeting the new aggressive pricing demands for this account would have required, in our opinion, providing a far inferior product to that to which the professional end-user was accustomed. On a more positive note, our product development effort, particularly during the second half of 2003, generated several new products that we expect to introduce during 2004 to the retail, industrial and automotive segments. We are optimistic that these new products will help mitigate the effect of the loss of this customer during the upcoming year.
We were deeply saddened by the passing of Florida Pneumatic's long-time President, Charles B. Swank, on July 12, 2003. Over his many years with the company, Charlie developed a large and experienced management team. It is from this talented group that we promoted Barton C. Swank to President effective July 30, 2003. Bart has over 20 years of experience in the pneumatic tool industry, and now leads an organization in which P&F has a great deal of confidence.
At Countrywide Hardware, Nationwide Industries completed its first full year of operations as part of our newly-formed hardware group. During 2003, the strong housing market in the South, which helped increase sales by over 50% in Nationwide's largest segment, fencing hardware, was primarily responsible for our strong performance. Unfortunately, the results at Nationwide were partially offset by weak sales at Countrywide's Franklin Manufacturing division. On a brighter note, from an operations perspective, we began, late in the year, to take advantage of the synergistic capabilities of Nationwide's and Franklin's sources of supply by co-sourcing products to reduce risk and shift production in order to lower our costs and maintain our standard of quality. We expect to see significant cost savings from this program in the coming year.
Further, I am pleased to report that Christopher Kliefoth joined us as President of Nationwide during the third quarter of 2003. Chris brings strong sales expertise and extensive industry knowledge, as well as more than 20 years of manufactured product sales and management experience, to the position. In addition, he possesses the necessary leadership skills to attract, develop and retain the very best people to service and support Nationwide's customers. He is a great addition to our team in Tampa.
At Green Manufacturing, we continued to make significant progress towards returning its operations to profitability. Although the year-over-year growth in revenues was only 2.3%, we increased sales of newly-developed cylinders by over $1 million. In addition, we continue to be very excited about our special cylinder products imported from China. These products generated more than $650,000 of additional sales in 2003, and we expect close to 100% growth in this product line in 2004. During 2003, we also saw demand for capital goods continue to improve, and this was reflected in stronger demand for our domestically manufactured products. As this trend is expected to continue, we are encouraged about future revenues in this area. From an operational perspective, we had another record year in productivity and again further reduced fixed operating costs. The benefits of these cost reductions will be even more evident as revenues continue to increase.
At Embassy Industries, we have continued to develop and emphasize niche product lines with growth characteristics as we primarily focus more on new products to supplement our extremely mature baseboard segment. As a result, we were encouraged by the growth in both radiant tubing and boiler sales during 2003, which increased 9% and 26%, respectively. Also, during the second half of the year, we launched our new Falcon line of commercial heating products, with great expectations for 2004. Finally, we are happy to report that Embassy implemented its cost reduction program, which resulted in first-year savings of approximately $300,000, including assistance from the State of New York.
In 2003, we saw an improvement in the overall economy, and this was reflected in our stronger performance at each subsidiary. As this trend continues and our marketing and productivity efforts gain momentum, we are hopeful of an even better 2004.
I would like to conclude by once again thanking our over 300 employees for all of their hard work, and our shareholders for their continuing interest and belief in our company. We are confident that our collective dedication will be reflected in positive results in the years to come.
View our 2003 Annual Report (470k PDF)
Very truly Yours,
Richard A. Horowitz
Chairman of the Board, President
and Chief Executive Officer