As L.A.’s biggest aerospace companies capture headlines and investor interest with their huge takeover battles, one of the region’s smaller publicly held aerospace firms has been engineering a remarkable turnaround.
Carson-based Ducommun Inc. went from a company on the verge of failure in the late 1980s to one that earned $10.5 million on $118 million in revenues last year.
And it performed that feat by going against the trend. While other companies were abandoning aerospace, Ducommun embraced it.
“It might seem a little ironic that they concentrated on aerospace when they did, but they weathered the downturn pretty well and now they’re positioned for the upturn,” said Jeffrey Van Sinderen, an analyst with Dabney/Resnick/Imperial LLC in Los Angeles.
Ducommun survived by converting itself from a nearly defunct electronics distributor into an aerospace components specialist that makes parts for the Space Shuttle, Boeing commercial airliners and other military and civilian aircraft.
Ducommun, believed to be the oldest continuously operating business in California, was started in Los Angeles in 1849 by Charles Ducommun, a Swiss immigrant who supplied picks, shovels and other supplies to fortune-seekers on their way to California’s Gold Rush country.
In later years, it evolved into a metals distributor. Ducommun changed course in the 1970s by moving into electronics distribution which proved disastrous. By 1988, the company was losing nearly $20 million a year and the stock was valued at under $1.
“For the three years from 1989 to 1991 we had a one-word mission statement: Survive,” recalled Joseph Berenato, the company’s president and chief executive. “People thought the company was gone.”
Berenato, who now runs the company’s day-to-day operations, credits Ducommun’s success to Chairman Norman Barkeley, a former Lear-Siegler CEO who was hired in 1988.
“Basically, the board turned to Norm and asked him to save the company,” Berenato said.
To do so, Barkeley reinvented the company. He sold off the unprofitable units and held onto the three remaining subsidiaries, which were small, profitable aerospace firms.
After some financial restructuring that included trading debt for equity, Ducommun began acquiring additional subsidiaries in 1994. Its holdings today include one Phoenix-based company, Mechtronics of Arizona Corp. , and five California-based subsidiaries: Aerochem Inc., AHF-Ducommun Inc., Jay-El Products Inc., Brice Manufacturin Co. and 3dbm Inc.
The company, with about 1,000 employees, had earnings per share last year of $1.33 up from 87 cents in 1995.
Ducommun’s sales have mirrored aerospace trends since the company changed industries. After rising to $74.7 million in 1990, annual revenues slipped steadily each year until reaching $61.7 million in 1994.
The company remained profitable despite falling sales, however, and in 1995 sales rose to $91.2 million.
Analysts say Ducommun is positioned to benefit from the improving commercial aircraft industry and because of the aerospace specialties it has developed.
Analyst William Gibson of Cruttenden Roth Inc. in Santa Barbara called Ducommun “a company that is doing extremely well but is remarkably undercovered by the investment community.” He said its growth is “only the second inning of what’s going to be a nine inning ball game” because the commercial aircraft industry is likely to grow for years to come.
Mitch Kummetz of A.G. Edwards & Sons in St. Louis said his brokerage recently began coverage of Ducommun after noticing its recent growth and the rise in its stock price.
“We’re recommending it as a buy,” said Kummetz, who projects the stock could reach $35 a share in the next 18 months.
“We think Ducommun has good upside potential because it is a smaller company that is doing very well as a supplier to larger companies that are also doing well,” Kummetz said. “Its fortunes, obviously, are somewhat tied to the fortunes of its big customers.”
According to Van Sinderen, Ducommun will profit in the coming years because of its ties to Boeing.
“A major trend at Boeing and other commercial aircraft manufacturers is to outsource more of certain kinds of specialty work,” Van Sinderen said. “Ducommun does that work, so as production goes up at the commercial aircraft plants, its business will grow.”
Van Sinderen explained that Ducommun has become a specialist in a production technique known as “digitized” design and manufacture of aircraft parts. The industry has used computer-aided design for a number of years, he said, but the digitized system is an even more advanced use of computers that requires much more precisely manufactured parts.
“Basically, this means that parts have to meet much more stringent tolerances,” Van Sinderen said. He said Ducommun has an advantage in digitized parts because the latest aerospace downturn reduced the number of competitors in the field and many of those remaining are “mom-and-pop shops” that can’t afford to buy the sophisticated equipment required to produce digitized parts.
Van Sinderen believes Ducommun will continue to perform well as the number of competing subcontractors declines, the upswing in commercial aircraft production continues and Ducommun makes further acquisitions.
Berenato said the company remains on the lookout for new acquisitions, although it’s had enough of the turnaround business.