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Original article URL: http://bridgemi.com/2012/04/prospects-brighten-for-mich-heavyweights/

Economy & competitive position

Prospects brighten for Mich. heavyweights

At Kelly Services Inc., business is good — quite good.

In Michigan alone last year, the global staffing company placed approximately 2,500 more people in positions than it did in 2010, spanning industries and all lines of Kelly’s business: temporary help, temp-to-hire and direct hires.

There’s been steady, increased demand for Troy-based Kelly’s services as the economy has strengthened. That’s good news for the company and job-seekers — and a beacon of recovery. Such results fit with the trends on Michigan’s jobless rate, which fell to 8.8 percent in February, its lowest level in four years.

The staffing industry is “a bellwether of the economy, particularly as demand goes up and down,” said Christopher Stark, Kelly territory vice president in Detroit. “We are the first to ramp up as an economy comes out of a recessionary cycle, and we are the first to be impacted when a recession or a contraction … takes place.”

Sustained demand for flexible staffing and overall job-market improvements have helped propel earnings and revenue growth at Kelly, with the company seeing 2011 revenue of $5.6 billion that was up 12 percent from the previous year, and earnings that more than doubled to reach $63.7 million.

And Kelly’s good fortunte isn’t unique in Michigan these days. From energy to autos, pizza to pills, the ledgers of Michigan’s big publicly traded companies look quite flush – some because of the economy, some in spite of it.

Auto suppliers draft behind Detroit Three

In manufacturing, there’s been a “tempered renaissance” that shows up in both revenue and earnings growth, said David Sowerby, portfolio manager at Loomis, Sayles & Co. in Bloomfield HiIls.

Not only did the Detroit Three automakers — Ford, General Motors and Chrysler —  post sales increases and profits in 2011, many of their suppliers surged ahead, too.

One is Auburn Hills-based BorgWarner Inc., which, in February, announced quarterly profits that reflected a 16 percent sales increase. For 2011, BorgWarner had net income of $550.1 million, compared with $377.4 million in 2010. Sales were up 26 percent to reach a record annual level of more than $7.1 billion.

The company, which supplies technologies that make powertrains more efficient, has said demand for its products such as gas and diesel engine turbochargers that increase fuel economy, transmission technology, engine timing systems and emissions products, is expected to drive strong growth.

BorgWarner expects $2.5 billion in new business for 2012 through 2014. Of the new business, most will come from overseas markets.

Dennis Johnson, chief investment officer at Comerica Asset Management Group inBirmingham, said the automotive parts industry is performing well.

“Coming out of the recession … they recovered very strongly,” he said. Johnson said that while auto parts companies nationally posted a profits growth rate of 42 percent over the three years from 2009 through 2011, Michigan companies exceeded those levels with growth rates in excess of 50 percent and some as high as 90 percent. He expects continued, but more modest, profit growth in 2012 and 2013, at rates of 12 percent to 13 percent.

On the west side of the state, Gentex Corp., another auto supplier, is going strong.

The Zeeland-based maker of automatic-dimming rearview mirrors and other products posted record financial results for the fourth quarter and full year of 2011, including annual net sales of more than $1 billion.

And the company has been in expansion mode. The latest projects, slated for completion this year: An approximately $9 million chemistry lab expansion at its Zeeland campus; an expansion of about $4 million to its exterior mirror manufacturing plant in Zeeland; an approximately $17 million expansion to its electronic assembly manufacturing plant inHolland; and an approximately $25 million expansion connecting two of its Zeeland manufacturing facilities.

Once completed, the projects are expected to generate 745 additional jobs at Gentex over three years, adding to Michigan’s returning numbers of auto supply sector jobs.

From the depths of the recession in 2009 through 2011, motor vehicle parts manufacturing employment has climbed 11,300 or 13.9 percent. The sector is still nearly 30 percent below its pre-recession employment levels, state figures show.

Overall, manufacturing employment grew by 41,300 from 2009 to 2011, but the industry was still 112,700 jobs shy of the pre-recession level.

Utilities doing well

The economic upturn has benefited Michigan’s two largest utilities, which have seen increased electricity sales. Jackson-based Consumers Energy Co. and Detroit Edison Co. also are seeing their parent companies, CMS Energy Corp. and DTE Energy Co., invest billions in utility operations — spending that generates jobs via new emission controls and renewable energy installations, such as wind farms.

CMS had 2011 net income of $415 million and revenue of $6.5 billion, both up from 2010, and DTE reached 2011 earnings of $711 million and revenue of nearly $8.9 billion, also up.

Pizza proves profitable

Sales and profits also continue to rise at Domino’s Pizza Inc., where 2011 results included same-store sales growth of 3.5 percent domestically and 6.8 percent international, and the addition of 413 international stores. For the year, Domino’s had $105.4 million in net income and revenue of $1.6 billion.

Chris Brandon, Domino’s manager of public relations and events, said the company has pushed success with its brand and its offerings, including new and revamped menu items in 2011.

He said the Ann Arbor-based company “felt the effects, just like everyone else” of the economic downturn but benefited by the 2009 introduction of a new pizza recipe and reinvention of its brand. “Those things really connected with consumers,” he said. While not done because of the downturn, Brandon added, “we were able to overcome some of those headwinds.”

Small city, big numbers

The right products — and new ones — have propelled Perrigo Co. in the small city of Allegan, south of Grand Rapids.

The manufacturer of over-the-counter and prescription pharmaceuticals and other products has seen growth largely driven by new product introductions. This year alone, Perrigo plans to launch more than 45 new products, which are expected to lead to more than $190 million in sales.

Perrigo is the world’s largest maker of over-the-counter pharmaceutical products for the store brand market. Art Shannon, Perrigo vice president of investor relations and communications, said that when the economic downturn hit, “people had already started to go to store brands, and it definitely accelerated.”

Shannon said retailers have greater profit margins on store-brand products and promote them heavily.

Perrigo, in February, posted record quarterly revenue and earnings, with a 17 percent sales increase over the fiscal 2011 second quarter driven by the July acquisitions and new product sales, including the April launch of fexofenadine, the store brand version of Allegra.

The company announced a few years ago plans to expand its Michigan operations and add 400 jobs in a variety of areas to accommodate growth and has been fulfilling those plans, including a new office building on its Allegan campus that is expected to be completed in January.

“We’ve been very fortunate in that we are in a very good area of the economy, where you have rising health-care costs, an aging population … and we’re a quality, affordable alternative,” said Shannon. “And people are obviously moving toward the store brands. We don’t see that trend changing in the future. Even in an economic turnaround, people aren’t going to pay more for the product they’re using now.”

Amy Lane is a former reporter for Crain’s Detroit Business, where she covered utilities, state government and state business for many years.

3 comments from Bridge readers.Add mine!

  1. Matt

    This must be the results of Gov. Snyder’s much maligned (by your readers) tax reform program!

    1. Joe

      I assume you’re being sarcastic since tax incentives had nothing to do with the consumer demand driving these areas of expansion. What is foretelling is the increase of part-time, no benefits, low-paid, part-time workers that are now being trumpeted as the vanguard of the recovery, when most likely, they are the recovery. I know many underemployed people that are considered employed but have no discretionary income to fuel a recovery. Perrigo’s sales may be up, but the number of people they will hire in their automated factories will not be proportional to their profits. They also have overseas factories and out-of-state factories that will not add to a Michigan recovery.

  2. Matt

    No I’m serious. I’m referring to the fact that business people like the climate they see developing and are comfortable expanding (creating more jobs) here in Michigan. I am one of them.

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