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Ladish Backs Away from IC Project in Mexico

Lower-cost investment-casting capacity still makes sense for us

Ladish Co. Inc. has tabled its plans for a new investment-casting operation in Mexico, according to an executive who spoke to analysts in a conference call to comment on the group’s 2008 results.

“We are still convinced, long-term, that it makes sense for us to have an additional investment-casting facility in a more lower-cost environment,” acknowledged Wayne E. Larsen, Ladish’s v.p. of law/finance and corporate secretary. “As far as Mexico itself, right now I would say (it’s) kind of on hold for the moment, that we are looking further out. We don't have any commitments as far as doing anything in '09, at this point.”

Ladish is known primarily as a forger, but it is also the parent of Pacific Cast Technologies, an investment-casting operation in Albany, OR. Like Ladish's forging operations, Pacific Cast maintains a heavy focus on aircraft and aerospace markets. Pacific Cast also was expanded in recent years, with additional vacuum-arc refining capacity and new finishing and inspection equipment.

In late 2007, Ladish announced it would build a new investment-casting plant in Mexico to produce titanium aerospace components, a project it budgeted at $16-20 million. The project was seen taking 20 months to start up. The capacity of the new plant was not revealed.

But, site selection proved difficult through the course of 2008 (no location has been named) and the project was reportedly well behind schedule .

Mexico was chosen because of regional expansions by air-framers, system integrators, and aerospace Tier One companies that Ladish supplies. "It makes sense for us to co-locate with customers in the emerging Mexican aerospace industry," according to president and CEO Kerry L. Woody in 2007. "In fact, they expect it of us."

Having reported 2008 net income of $32.2 million, on sales of $469.5 million, Ladish is offering a cautious view of the coming year. “Contract backlog remains strong at $629 million at the start of the year," according to Woody, but he listed pension costs, depreciation, and taxes among challenges to the group’s earnings potential in 2009. “In addition, projected gains from lower raw-material pricing will likely be more than offset by the continued collapse of the by-product market,” according to the CEO.

However, Ladish’s 2008 fourth-quarter earnings-per-share declined versus 4Q 2007, a period during which the company felt the effects of the month-long machinist’s strike against Boeing Co. Larsen indicated the strike “disrupted schedules across the board for us at virtually all of our operating units.” He added that Pacific Cast and some of the Ladish machining operations were hit especially hard by the slowdown.

In this atmosphere, expansion plans are not a priority for Ladish. “The theory (of adding investment-casting capacity) is still right,” Larsen explained, “but, given where the market is right now, it's hard to justify another expansion for us.”

Asked by an analyst directly if the Mexico project or any other expansion would proceed, Larsen minimized the prospect. “With the exception as I indicated, if some existing business comes along, and shows up on the acquisition front that make sense for us, we certainly wouldn't turn that down,” Larsen allowed. “But, we don't have any other expansion plans at this point.”

“While these challenges in 2009 are daunting,” Kerry emphasized, “we are confident the Ladish family of businesses are taking the appropriate steps to control their costs, which have already included a 5% reduction in employment levels, and reduce expenses."

TAGS: Melt/Pour
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