Buhler Industries (TSX:BUI) produces agricultural equipment in Canada, the U.S., and overseas. The company’s products are marketed through an extensive network under the brand names Versatile, Allied, and Farm King.
Buhler was incorporated in 1917 and is headquartered in Winnipeg, Manitoba. In 2007, Russian company Combine Factory Rostselmash, a major combine manufacturer, acquired 80% of Buhler Industries. Historically, Buhler has adapted well to industry challenges, indicating the ability to make some tough decisions.
Recently, the company has been affected by farming challenges across North America due to low commodity prices and significant crop losses caused by drought. This resulted in North American farmers having lower operating capital and a buildup of Versatile machinery in North America. The industry generally has also experienced a large uptick in inventory. As a result, big changes had to be taken by Buhler Industries.
The company has taken action, including a reduction in overhead and staff, and overhauled its leadership team. In 2019, Buhler appointed several new executives including a president, vice president of Farm King, director of engineering, and a vice president of sales and marketing. The company also took steps to re-evaluate priorities and improve relationships with dealers and suppliers.
The company merged Buhler’s sales and marketing departments to improve communication and began to focus relentlessly on the customer. Buhler also improved product quality, invested in new product development and took the necessary next steps to produce new products that were in development.
Several Versatile products are scheduled to be released in 2020. These new products will increase production in Winnipeg and offer Versatile the opportunity to move into global markets. Two new machines from Farm King entered production as well, enhancing the portfolio of grain handling products.
Buhler struggled during 2019, generating 10% less in sales than during the year prior, taking a significant hit to operating income, and it reported negative earnings. Buhler continues to blame low commodity prices for the decline in profits, primarily driven by Eastern European markets.
Buhler is now focused on improving margins by cutting costs and inventory, but the impact of these measures is yet to materialize.
The machine equipment market in North America is expected to grow significantly, driven by a growing farming industry in the U.S., where rising labour wages have pushed farmers to purchase machinery. A rise in advanced farming equipment is also expected to drive further efficiencies.
Buhler can take advantage of these trends by effectively marketing and selling its equipment. Sales levels are expected to remain at depressed levels until the new products are rolled out. Management have been investing heavily in research & development to achieve higher market acceptance.
In addition to the company’s newest tractor technology, Buhler management recently announced an agreement with Kubota tractors, to fully manufacture and produce Kubota’s most powerful tractors. Manufacturing of Kubota tractors can be done in existing Buhler facilities, improving Buhler’s profits and efficiencies.
In summary, Buhler Industries looks very attractive at these levels and could provide excellent returns for the patient, long-term investor.
