Investor Relations
Letters to Shareholders
2004 Letter to Shareholders
The general economic environment in the U.S. continued to improve in 2004 and our core economic indicators, retail sales and housing starts, were strong. However, despite our improved earnings, the continued increase in the strength of foreign currencies in which P&F makes purchases, primarily the Japanese yen, the New Taiwan dollar and the euro, had a somewhat negative impact on our solid results. In addition, all of our subsidiaries suffered from the increases in costs of most metal and metal-composed products. Although we were able to make some adjustments in selling prices, we could not generally maintain the margin levels we had been accustomed to, due to competitive pressures, contractual commitments or delays in practical implementation.
Florida Pneumatic was able to increase sales by 5% in spite of the loss of its third largest customer at the end of 2003. This was accomplished through increased promotional business at our two largest accounts, as well as by the successful introduction of several new products, especially in our automotive segment, which grew by over 200%. Product development continues with more introductions planned for 2005. As mentioned above, the currency situation negatively affected earnings at Florida Pneumatic, but we are encouraged by our product development pipeline and by our continuing strong customer relationships, evidenced by Florida Pneumatic being chosen in 2004 by Sears for its prestigious ''Partners in Progress'' award, which is given to only a small group of its best performing suppliers.
The major development at Countrywide Hardware was our June 30, 2004 acquisition of Woodmark International, L.P. Woodmark is an importer of builders' hardware, including staircase components and kitchen and bath hardware and accessories. We believe Woodmark's product offerings, distribution channels and warehouse facilities will provide P&F with significant operating leverage that will enable us to continue to enhance our service to the residential construction and home improvement industries. Woodmark contributed nearly $20 million in revenues to Countrywide during the second half of 2004 and we look forward to a full year of Woodmark's contributions in 2005.
Countrywide's Nationwide Industries subsidiary had an excellent year as well. Their 14% revenue growth was primarily driven by a 29% increase in sales of fencing products as strong housing starts in the south continued to support this business. Although we did experience a rise in sourced product costs due to the increases in the prices of basic metals, the impact on margins was more than offset by the reduction in costs due to the partial shifting of certain production to a high-quality, lower-cost supplier. This shifting of production will continue during 2005, with additional savings expected.
Finally, Countrywide's Franklin Manufacturing division had a slightly down year as the result of one major customer reducing its ordering, but the relationship with this account is strong and we will continue to develop products for this customer and others in 2005.
At Embassy Industries, overall revenues were supported by strong housing starts for most of 2004. Margins on our residential baseboard product line suffered as the cost of basic metals increased significantly throughout the year, negatively impacting margins for the better part of this period. On a more positive note, our expansion into the boiler market rewarded us as we saw sales increase almost 47% in this product line, which now generates over $1 million in revenues annually. In addition, development of our commercial heating product line showed promise as sales doubled from the prior year. We believe that we are well-positioned with both of these product areas to take advantage of market opportunities going forward.
A major event for the Company was the December 2004 disposition of Green Manufacturing's hydraulic cylinder division, as well as the recent disposition of its access products division, which was completed in February 2005. In the opinion of management, the fiscal and human resources required to support these businesses in the long-term exceeded those that would generate a reasonable return for the Company. In addition, we believe that shifting those resources to other operations will yield a better result and increase shareholder value into the future. We are planning to move the remaining agricultural products division of Green to Nationwide Industries in Tampa in 2005. This unit has demonstrated steady revenues and profits since P&F has owned Green.
In 2004, we saw P&F turn in a strong performance by our historical standards as we added another major operating unit, substantially disposed of a disappointing division and continued to improve prospects for the remaining business segments. We are also pleased that the stock market is beginning to recognize what we believe is a promising future for the Company.
We once again thank our many employees for their efforts in 2004 and our long-term shareholders, who have finally realized some of the stock's potential. We welcome our new stockholders who, along with us, believe our future at P&F is bright. We look forward to reporting on what we think will be an even more exciting and productive year in 2005.
View our 2004 Annual Report (836k PDF)
Very truly Yours,
Richard A. Horowitz
Chairman of the Board, President
and Chief Executive Officer