Butler Manufacturing Co. Business Information, Profile, and History

History of Butler Manufacturing Co.

Butler Manufacturing Co. is a leading supplier of building systems, specialty components, grain storage systems, and construction services for the nonresidential construction market. The company garnered revenues of about $692 million in 1994 from both domestic and international sales and employed about 3,500 workers.

Emanuel Norquist along with brothers Charles and Newton Butler founded Butler Manufacturing Co., in Kansas City, in 1901. A few years earlier, Charles and Emanuel had worked together on building an improved livestock watering tank, and, during the early 1900s, along with Newton Butler, the men designed and built several agricultural products, particularly grain storage bins. The company enjoyed success selling such merchandise locally, and, by 1908, Butler's headquarters included a staff of 14--six women and eight men. Sales boomed throughout the 1910s and 1920s.

Although Butler would become famous for its grain storage bins, or "Butler bins," during the early and mid-1900s, the company began branching out into new sideline businesses early in the century. For example, in 1909, the company erected its first metal building, an all steel garage. That simple structure would help to lay the foundation for what would eventually become Butler's bread-and-butter business. Other major ventures included metal farm implements and oil field equipment.

Among the company's most interesting early endeavors was the Butler Aircraft Corp. Butler's founders started that subsidiary in the wake of the airplane craze prompted by Lindbergh's famed transatlantic flight in 1927. In 1929, in fact, more licenses were issued for planes than at any time in U.S. history. Butler designed and built the Blackhawk, a biplane typical of the many aircraft being produced across the nation at the time. The ship stood nine feet tall and 24 feet long, boasted a top speed of 130 miles per hour, and could travel 650 miles on a single tank of gas.

Drawing on expertise and materials it had garnered from its metal bin and building operations to construct the plane, Butler fashioned a three-building factory to manufacture the Blackhawks, which were priced at $7,995 each. Unfortunately, the Great Depression quashed Butler's airplane division after only 11 of its Blackhawks had been produced. Like other manufacturers at the time, Butler suffered during the Depression years as sales and profits declined dramatically.

Butler survived the 1930s, buoyed mainly by its oil equipment operations. Although it was the largest manufacturer of grain bins, Butler's farm equipment segment actually contributed the least revenue of its five divisions. The grain bin industry was susceptible to the cyclicality of the overall agriculture business; when crop yields were high more storage was needed, and when yields were low, demand for new bins would plummet. Butler's bin sales had languished during much of the early and mid-1930s. However, that would soon change, as a result of an incident that would be highlighted in company annals throughout the century.

1938 turned out to be a very good year for crops, and 1939 was even better. As bumper crops were harvested, the nation's storage capacity was stressed. The U.S. Department of Agriculture (USDA), realizing the urgency of the situation, announced in July 1939 that it would accept bids on 30,666 steel storage bins. Incredibly, USDA officials required that all bids be submitted within 30 days and that the bins had to be delivered by the manufacturer within 60 days of receiving an order.

Butler's two plants in Kansas City and Minneapolis were already operating at full capacity, so Butler executives were split over whether or not to bid for the government work. They knew that failure to fulfill the contract terms could spell ruin for the company. Determined to capture a portion of the massive government job, nevertheless, managers embarked on a tenacious search for an abandoned plant that they could convert to build the bins. They found an acceptable, though dilapidated, plant in Galesburg, Illinois. As Butler scrambled to reclaim the facility, it also began preparing a bid to supply 14,500 bins, or about half of the entire contract.

Butler's bid was hand carried to Washington and opened on August 2, 1939. Butler, the low bidder, was awarded the job. "What occurred in Galesburg and throughout the company in the 60 days following that first contract is the stuff of legends," according to company archives. Indeed, Butler's work force launched a production campaign still unrivaled in its long history, churning out grain storage bins at an average rate of almost 250 per day. All 14,500 bins were delivered one day ahead of schedule. Furthermore, another 6,000 units that had been ordered in mid-contract were shipped 15 days later.

Butler used the government contract in 1939 as an opportunity to add a new production facility to its organization. The Galesburg plant was converted for year-round use in 1940 and began manufacturing steel buildings following World War II. Butler had been manufacturing metal buildings since the early 1900s, but it manufactured it first "rigid-frame" building design in 1939. Demand for its popular single-story, rigid-frame structures flourished during the postwar U.S. economic boom.

In the 1950s, the company stepped up its efforts in the metal building market. The shift to the production of metal buildings reflected management's desire to reduce Butler's susceptibility to volatile agricultural markets. Management completely eliminated the grain bin operations in the Galesburg plant, for example, converting it solely to the manufacture of pre-engineered, non-residential structures. Butler's goal was to create two major markets for its products--agricultural and construction--that would provide a more stable pattern of income. The scheme proved effective, and, although both industries were cyclical, Butler's construction and agricultural markets were rarely down at the same time through the 1960s and 1970s.

During this time, demand surged for Butler's expanding lines of agricultural and building products. Sales flourished, earnings rose, and the company posted profits virtually every year between the late 1950s and early 1980s. Butler's fortunes changed in the early 1980s, however, for several reasons. Most importantly, the U.S. agricultural market tailspinned into a long-term slump. Butler posted a loss in 1983 of $7.5 million, its first loss in more than 30 years. Moreover, the industrial and commercial construction markets were still struggling to recover from an ugly downturn that began in the late 1970s and lingered into the early 1980s.

Discouraged by its setbacks in agricultural markets, Butler management decided to begin downplaying that side of their business. They held on to their sporadically profitable grain bin operations (the storage bin business generally followed four or five year cycles, meaning that Butler could usually generate extremely high profits about one year in five), but jettisoned most of its other agricultural operations, which had less long-term potential. By 1986, Butler's agricultural holdings represented less than 15 percent of its total assets, down from about 25 percent just three years earlier.

Butler's decision to focus on pre-engineered buildings and related specialty products was made at a opportune time. The commercial and industrial real estate industry boomed during the mid- and late 1980s, bolstering demand for Butler's innovative pre-engineered buildings. Its structures ranged from airplane hangars, churches, and football practice facilitates to large steel mills and small commercial and industrial buildings. The structures were usually made to order in one of Butler's several factories and then assembled on-site.

To supplant revenue losses in its waning agricultural division, Butler acquired several companies that manufactured products related to its building division, such as exterior wall panels, windows, and electrical systems. Sales from those acquisitions, combined with it core operations, allowed Butler to generate sales of more than $500 million annually by the mid-1980s. Earnings, however, remained in the $10 million range following the 1983 loss, despite strengthening construction markets.

In 1986, in an effort to improve the company's performance, Butler's directors placed Robert West at the helm of the organization as chairperson and named Donald Pratt as president. Both men had been with Butler since the mid-1960s. West oversaw the divestment of some of Butler's excess baggage, while seeking to integrate the company's newer acquisitions into its core building business. Unfortunately, he had his hands full with the latter task. Indeed, Butler was finding that many of its related subsidiaries were failing to perform as expected and were dragging down overall company gains.

For example, in mid-1986, Butler acquired Inryco, a manufacturer of exterior wall panels and accessories. Management hoped to integrate Inryco's product line and facilities into its pre-engineered building operations, and the Inryco plant was relocated from Minnesota to Kentucky at a considerable cost. Only one year after the acquisition, however, West was having doubts as to whether Butler would be able to keep the new subsidiary. Productivity and equipment reliability problems were proving much more acute than originally thought, and Butler stood to lose from the venture.

Moreover, Butler had made other acquisitions that it had hoped would enhance its mainstay metal buildings, companies that would provide skylights, window walls, and exterior wall panels, and handle other parts of the construction process. But some of those additions also languished. Its Naturalite division, for instance, lost money and required a restructuring cost of about $4 million during the late 1980s.

West restructured or dispatched Butler's nonperforming divisions during the late 1980s and focused the company's efforts on its core metal building business. Despite stagnant earnings growth, its balance sheet was extremely healthy and the company enjoyed robust cash flow. Part of its financial health going into the early 1990s was attributable to West's strategy of plowing cash back into existing operations, rather than making risky acquisitions as the company had done in the past. In 1989, in fact, Butler surprised shareholders with a one-time $20-per-share dividend.

Although Butler had made significant progress in restructuring its operations and shoring up its balance sheet since the early 1980s, commercial and industrial construction markets flopped begainning in the early 1990s, thus stifling opportunities for growth and tempering sales and profits for the company. Earnings hovered below the $10 million mark before the company posted the third loss in its history in 1991. Nevertheless, markets slowly began to improve in 1993 and 1994, and earnings eventually recovered.

While it repositioned its market stance during the 1980s, Butler also focused on improving the safety of its operations. The company had established a reputation for taking care of its employees, so when it recorded more than 130 major injuries in 1979, ranging from wrenched backs to broken bones, management decided to take action. Butler hired a safety director and initiated a 16-point safety program at its Galesburg plant. In fact, the program so successful that it was implemented company-wide. By the early 1990s, Butler was leading the industry in safety with an injury rate of .32 per 100 workers, compared to the industry average of 4.5 per 100. An added bonus was that Butler paid about half the workers' compensation insurance rates that most of its competitors paid.

Going into the mid-1990s, Butler was realizing the benefits of its restructuring efforts during previous five years. In addition, construction markets continued to improve, thus boosting sales of Butler's metal structures, while orders for grain storage systems also increased. Similarly, Butler enjoyed success with some of its subsidiaries. Its wood structure business, for example, which was acquired during the mid-1980s, was performing well and promised to represent an increasingly larger proportion of company revenues.

More importantly, Butler was making solid gains overseas. Already active throughout the world with operations in Saudi Arabia and the United Kingdom, the company was also achieving strong growth in developing nations. Butler contracted with Wal-Mart to build stores in Mexico and South America, for example, and was engaged in a $6.7 million contract for an automobile plant in China in 1994; total sales to the Far East topped $28 million in 1994. Butler was also enjoying demand growth in Russia and other former Eastern Block countries. Foreign sales growth contributed significantly to Butler's 1994 revenue figure of $692 million and accounted for 15 percent of revenues. Operating earnings rose to $33 million in 1994, buoying Butler's stock price.

An interesting aside to the Butler story developed in the early 1990s and involved the old Butler Aircraft Corp. division of 60 years ago. Sometime after World War II, one of Butler's Blackhawk planes ended up in pieces in a barber's garage. LeRoy Brown, one of the barber's customers, purchased the pieces in the late 1960s for $250. Brown, a Pan American DC-10 pilot, spent 20 years restoring the plane. In 1980, Brown flew the plane for Butler executives, and the company purchased the aircraft in 1991. The plane, which Butler stored in a Kansas City hangar, continued to perform just as it had when the Butler brothers completed it in 1929.

Principal Subsidiaries: BUCON, Inc.; Buildings Division; Butler Real Estate Division; Butler Building Systems, Ltd.; Butler World Trade; Grain Systems Division; Lester Building Systems Division; Vistawall Architectural Products Division.