ABI CEO Survey Reveals Cautious Optimism Among Leaders

Leaders of Iowa companies working through the lingering effects of the COVID-19 pandemic found cause for cautious optimism, fueled in part by their success adapting to unprecedented economic times. 

“We’re in a business cycle I don’t think we’ve seen before,” said Connor Deering, CEO and president of Cemen Tech Inc. “I’m not sure anyone is sure what’s going to happen.” 

The Iowa Association of Business and Industry’s annual anonymous CEO survey drew replies from 89 executives. Most reported they’re coping with disruptions to supply and labor, further complicated by interest rates raised to counter the inflation resulting from those disruptions. 

“Uncertainty of any type always creates challenges, whether you’re a buyer or a seller or you’re looking for funding,” observed Steve Jacobs, president of BCC Advisers. The Des Moines firm advises privately held businesses on mergers and acquisitions, business valuation, and litigation support. 

“Good companies with strong balance sheets can obtain funding, albeit at a higher cost,” said Mr. Jacobs. “Banks are still lending money; they’re just not making cash-flow loans like they used to.” 

Mr. Jacobs said lenders have tightened their underwriting guidelines, making it more difficult to value goodwill or intangible assets. 

Mr. Deering, the Indianola manufacturer, is not alone in facing the challenge of rising costs for labor and materials. In fact, according to a recent survey of CEOs (refer to the chart), more than 75 percent of them have experienced similar cost increases. In response to this industry-wide issue, Mr. Deering has made the necessary adjustments by incorporating these costs into their line of specialized cement-mixing trucks. 

“We don’t have the ability to do anything but pass those along to our customers,” Mr. Deering said. “We’ve gotten a significant number and volume to the price increases on components and raw materials. I don’t think we’ve been able to pass all of those along, but we’ve worked hard to pass those increases on.” 

“We have a very small percentage of costs that have decreased lately,” said Mary Landhuis, president of Clarinda-based Lisle Corporation, noting the cost of shipping containers as an example. “The majority of our costs have not.” 

Most CEOs report their supply chains seem to have stabilized, perhaps a sign the Fed’s interest-rate hikes are taking effect. 

“It’s not wonderful today, but it’s getting better,” said David Cooper, chairman of the University of Iowa’s economics department. “A pretty strong majority (of those surveyed) say it’s stabilized, it’s not getting worse. That’s a positive thing.” 

Accustomed to adjusting to spot shortages from their suppliers, manufacturers recognize they’re in turn part of their own customers’ supply worries. 

“We’re not the only one in this boat,” Ms. Landhuis said. “Now that the supply chain is more stable or at least normal, we’re seeing that right-sizing inventories has been happening at the customer level and at the supplier level.” 

Cemen Tech’s costs have been driven by the rising cost of the heavy truck chassis that carry the firm’s volumetric concrete mixer. Most of the company’s 200 workers are in Indianola, with sales and service staff nationwide. 

“Those trucks have risen in price pretty significantly,” Mr. Deering said. “The availability has been very difficult. We’ve placed orders in the spring or early summer of ’22 for ’23, and we get about 50 percent of what we were looking to get.” 

Recent trends support respondents’ belief inputs may be stabilizing. 

“We’ve seen some mild improvement in the last six months,” Mr. Deering said. “We’ve gotten calls from a couple of truck manufacturers, and we’ve been able to squeeze a few more trucks out of them.” 

Workforce issues are especially acute in rural Iowa, where some employers have adopted coping strategies. 

“We’ve learned to be much more flexible in terms of part-time versus full-time hours, things of that nature, and just look for opportunities to attract parts of the workforce,” said Ms. Landhuis. Lisle employs about 340 in Clarinda, most producing the automotive service tools that are the backbone of the 120-year-old company. 

“We’re very open-minded and always looking at the ways we can offer those opportunities for the existing labor force,” Ms. Landhuis said. “In rural Iowa, for the longer term it’s going to be a challenge.” 

Lisle works closely with Iowa Western Community College to develop its workers’ skills. 

“Our focus is really on maintaining and upscaling the workforce – investing in training with them, classes and coursework that will add to their skill sets,’ Ms. Landhuis said. 

Mr. Deering, who estimated his company had about 30 openings one day last month, is putting the finishing touches to “Cemen Tech University,” designed to train new hires and build the skills of current workers. The company has spent “a couple hundred thousand dollars” on a refurbished training facility and hired a staff member to coordinate training efforts. 

“We used to hire for certain skills, whether it’s welders or painters,” Mr. Deering said. “Rather than hiring for skill, we’re going to hire for work ethic and attitude. We’re going to train them to become a welder, but we’re also going to train them on what our culture means and what the value of our ESOP is and individual financial planning, so they get a better foundation. We’ll end up with a better, more loyal employee, and stronger culture.” 

“That’s very much a good thing,” said Anne Villamil, a University of Iowa economics professor and research fellow. “Welding is an area where there have been shortages for some time, and it’s important that firms are taking action to get the kinds of people they need.” 

“Given the issues with unemployment being so low and so difficult to attract employees, what we’ve done is to make sure we’re good to our employees,” said Cemen Tech’s Mr. Deering. “We’re taking the time to see what their expectations are.” 

“The Great Resignation is starting to die out, but it was very powerful for a long time,” Mr. Cooper said. 

The unsettled economy has meant opportunity for some Iowa companies. Lisle’s core automotive products helped boost the average age of vehicles on American roads to a record 12.2 years this spring, for example. 

“There’s still somewhat of a shortage of new cars coming onto the market, so they’re hanging on to those vehicles,” Ms. Landhuis said. 

Similarly, Cemen Tech’s volumetric mixers enable contractors to produce concrete on their own instead of relying on ready-mix vendors, potentially reducing costs by up to 25 percent while avoiding delays due to missed deliveries. 

“It’s a high-ROI product, because they can go out and execute jobs on their timeline,” Mr. Deering said. “It allows them to go out and get more work done with the same resources.” 

Like about half of Iowa companies, both Lisle and Cemen Tech plan to expand through mergers and acquisitions. 

“Three (acquisitions) within the past eight years, and hopefully more to come,” said Ms. Landhuis. Drawing on its existing skill set has allowed Lisle to add healthcare products such as lifts for moving bedridden patients. 

“It really does well when we find a niche that’s in the automotive aftermarket or healthcare,” Ms. Landhuis said. “We keep our minds open to other types of industries as well.” 

“We’re constantly and actively looking for an acquisition that would be the right fit and the right product for our business,” Mr. Deering said. 

“Really good companies are looking to go through acquisition and take advantage of the opportunities that are out there,” said Mr. Jacobs. “There are a lot of business owners that are aging out.” 

That may be reflected in a shift BCC has noted in clients’ merger and acquisition strategies. Pre-2020, interest was often split about evenly between companies looking to buy or sell; “now it’s usually 80 percent on the sell side,” according to Mr. Jacobs. 

“If you’re a good business with a strong balance sheet, you can pretty much still do as much as you want,” he said. “There are a lot of other ways of getting something for both buyer and seller.” 

Fewer than half of those surveyed have a formal succession plan, a potential weakness. 

“At a well-run firm, you’d like to have a succession plan,” Mr. Cooper said. “If the founder dies, you’d like to have something a little better than, ‘The eldest kid will take over.’ It’s a little worrisome that we have that many without a formal plan.” 

“For organizations our size it’s sometimes tough to have one individual plan for some of the (management) roles,” Mr. Deering said. “We look at where we’ve got key folks, and where those opportunities exist for other folks.” 

Companies that have managed to navigate post-pandemic find cause for optimism, tempered by continued vigilance for the next challenges. 

“Is it a great economy right now? That would be a bit much,” Mr. Cooper said. “But all the interest rate hikes coming out of the Fed did what they were supposed to do.” 

“Last year was an extremely busy and successful year for us,” said Jacobs. “This year started off extremely strong, and if we can get some breaks, we’ll have a good year.” 

“It depends on what week it is,” Mr. Deering said of his outlook, noting a recent “slight slowing” in orders. 

“Everybody is a lot more cautious.” 

Villamil said the glass-half-full outlook for well-managed firms may be an expression of confidence in their new coping skills. 

“When I talk to people, the word they use a lot is ‘resiliency,’” she said. “They’ve been through so much, and they’ve learned how to pivot. They’ve learned some important things – communicating with customers and employees, communicating with their bankers.”