Sawmill and Wood Products Company
This Mid-Atlantic, third generation company began as a hardwood sawmill but over the years had added significant kiln and wood products manufacturing assets. A large equipment upgrade left the Company with a state of the art operation with computer controlled equipment but much higher debt. When the housing market crashed after the financial crisis of 2008, revenues plummeted from $125 million to around $50 million. Fearful of losing sources of hardwood logs and its remaining customers, the Company was slow to act which resulted in bloated inventories, additional losses and debt of over $50 million.
Working first for the bank, McShane did a complete review of the Company and its prospects. McShane advised the Company and the bank that the inventory had to be dealt with or the Company could not survive. In particular, raw material sourcing and acquisition had to be radically and immediately changed.
Later, McShane Group was hired by the Company to design a turnaround plan and prepare a detailed financial forecast and rolling 13 week cash flow model for the bank. Given the multiple raw materials, multiple bi-products and thousands of SKUs of finished goods, the forecasts could be simplistic or quite detailed. The effort was complicated by out dated information systems and use of “average cost” to calculate cost of goods sold. The decision was made to build a detailed, complicated, but powerful model, which McShane Group helped the CFO construct.
Earlier suggestions had been acted upon and were now reinforced, particularly in raw material acquisition and manpower utilization. Management had embarked on an aggressive program to cross train employees allowing the Company to alternate operation of the saw mill with the manufacturing plant, greatly driving down labor costs. Multiple other cost saving efforts including retirements, benefits changes, maintenance program automation and electricity utilization procedures, when combined with new marketing initiatives, resulted in enough cash flow to cover operating costs and pay loan interest. McShane advised patience until housing starts recovered. An impatient lender forced sale of the company to a private equity firm that not only left Company management in place but folded in other acquired wood products assets. We believe the bank suffered a loss in excess of $30 million and thus will fail to share in a very nice recovery.
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