Hammond Manufacturing Company Limited

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Hammond Manufacturing Company Limited

394 Edinburgh Road North
Guelph, Ontario N1H 1E5
Canada
Telephone: (519) 822-2960
Fax: (519) 822-7289
Web site: http://www.hammfg.com

Public Company
Founded: 1917 as O.S. Hammond and Son
Employees: 539
Sales: $57.6 million (2005)
Stock Exchanges: Toronto
Ticker Symbol: HMM.A
NAIC: 334416 Electronic Coil, Transformer, and Other Inductor Manufacturing

Hammond Manufacturing Company Limited, based in Guelph, Ontario, Canada, is a global company that divides its business between two groups. The Hammond Electrical Enclosure Group manufactures a wide variety of enclosures, essentially cabinets, to house electrical components. Product lines include industrial, corrosion resistant, modular freestanding, climate control, operator interface, and industrial wireway and trough enclosures. In addition, the company sells accessories for these units and provides modification services to ensure that the enclosures meet specific customer needs. The Hammond Electronics Group produces small enclosures, racks and cabinets, transformers, surge protectors, and outlet strips. Hammond maintains facilities in Canada, the United States, the United Kingdom, and Australia, and sells its products directly to original equipment manufacturers (OEMs) and through a worldwide network of agents and distributors. The company also owns a 45 percent interest in Moloney Electric Inc., a maker of distribution transformers. Hammond is a public company listed on the Toronto Stock Exchange.

COMPANY'S 1917 LAUNCH

The man behind the Hammond name was Oliver S. Hammond, a tool and die maker by trade and inventor on the side. He set up a one-lathe shop in his basement to turn out tools used in the foundries, and in 1917 he and his eldest son, Leonard, went into business under the name O.S. Hammond & Son. Hammond was also a radio enthusiast. At the time, radio was still in the experimental stages, with only a handful of broadcasting stations and a small number of listeners, who had to rely on primitive crystal sets and headphones. In 1919 the fledgling company began making radios for sale, the same year that Marconi station XWA in Montreal was granted the first Canadian radio license and began broadcasting. As radio sets became ever more powerful through the use of vacuum tubes, businessmen recognized the commercial potential of the radio broadcast medium. In November 1920 in Pittsburgh, Pennsylvania, the world's first commercial radio station, KDKA, began to broadcast a regular schedule of programming, setting the stage for the explosive growth of radio.

Hammond built a 20- by 30-foot workshop in the back of his house, where in the early 1920s the company began building five-tube radio sets. When Oliver Hammond died suddenly in 1925, his four sons—Leonard, Fred, Ken, and Roy—inherited the business, which in 1927 adopted the name Hammond Manufacturing. Fred Hammond was just 13 years old when his father died, but he was obsessed with radio, having built his first set when he was just 11 years of age. He would go on to drive the growth of the company as well as the field of amateur "ham" radio, gaining his radio license, making friends around the world, and becoming a leader among amateur radio enthusiasts.

In 1926 Hammond began producing a six-tube radio, but after producing several hundred radios the company faced a legal challenge from the Radio Corporation of America (RCA), which demanded Hammond license its technology for $5,000 and pay a royalty for each radio the company sold. The price was so steep that the Hammond brothers saw no chance to turn a profit, and as a result they stopped making radios. Instead, they turned their attention to the production of radio-related products: audio power amplifiers, battery chargers, and battery eliminators. This change in direction also led to the company's first involvement in the production of transformers and enclosures as well as the filter chokes used in broadcast transmitters.

Being forced out of radio production by RCA was also a blessing in disguise became many manufacturers did not survive the Great Depression of the 1930s, precipitated by the stock market crash of 1929. People continued to listen to radio over the sets they bought during good times, and broadcasters continued to thrive in the 1930s. Hammond benefited by expanding to offer new audio, transmitter, and high voltage transformers.

Hammond was well prepared to take advantage of the increased military demand for communications transmitters during World War II. In addition, the rapid development of radar during this period provided another opportunity in the manufacture of specialized transformers required by the radar systems. Hammond was positioned to flourish during the subsequent Cold War that pitted Western democracies against the Soviet Union. An extensive early warning radar system was developed and deployed across Canada, Greenland, and Alaska to detect Soviet bombers and missiles. These units required increasingly sophisticated transformers and enclosures. The postwar economic boom also resulted in a growing need for Hammond's products among industrial customers. While radio remained popular with the masses and generated a steady stream of income for the company, a new medium, television, grew at an even faster clip than had radio three decades earlier, quickly becoming commonplace in the 1950s. In addition, other electronic equipment was coming onto the market, requiring the kind of products Hammond specialized in.

THIRD GENERATION TAKING
CHARGE: 1978

The postwar era gave way to the 1960s and 1970s and continued prosperity for Hammond. The company turned its attention southward, entering the massive market of the United States, and also began doing business around the world during this period. There was, furthermore, a changing of the guard, as the third generation of the Hammond family took control in 1978. Fred Hammond's sons, Robert and William, gained control and guided the company their grandfather founded. With Robert serving as chairman and CEO and William as president, they restructured the company along profit center lines, focusing on three areas: transformers, enclosures, and power supplies. In addition, a separate service group was formed to provide these units with catalog distribution, marketing, and sales support.

In the 1980s the company faced the challenge of open borders and free trade, and the new management team responded by focusing even more resources on the U.S. market. It proved to be a wise decision, as U.S. business doubled and would eventually account for about 70 percent of sales. Moreover, the third generation of the Hammond family also took the company public in 1986 and shares in Hammond Manufacturing were listed on the Toronto Stock Exchange. The 1980s brought the acquisition of Moloney Electric at the end of the decade, but the period also saw the creation of a joint venture in Korea, CKC Hammond Electronics Co. Ltd. In 1990 Hammond was forced to write off the investment and the operation was shut down.

COMPANY PERSPECTIVES

Today, Hammond Manufacturing is a global company with customers worldwide. Our 500 plus employees work together to deliver on our promise of quality products and service excellence. High performance manufacturing equipment and continuous improvement management techniques combine to enhance our reputation for quality. Ongoing efforts to differentiate ourselves through high levels of service and customer satisfaction are a key corporate focus. These are the cornerstones to our future success.

Following a downturn in the economy at the outset of the decade, Hammond enjoyed steady growth in the first half of the 1990s. Sales grew from CAD 111.3 million in 1993 to more than CAD 150 million in 1996, while net income improved from CAD 2.6 million to nearly CAD 3.5 million. In 1995 a fourth profit center, Hammond Electronics Group, was created by pulling together the electronics business of the enclosure and transformer groups. In addition, in 1995 Hammond elected to exit the mobile transformer substation business, selling the technology it controlled in this area to Pauwels Contracting, a major manufacturer of special purpose transformers. Furthermore, in 1996 the transformer and enclosure groups were consolidated into a new operational and strategic planning unit, the Industrial Group, headed by William Hammond. By this stage, Hammond operated six plants in Ontario, two more in Canada, a pair of plants in Wisconsin and California, as well as a manufacturing facility in Hampshire, England.

Hammond continued to shift its resources in 1997. Strong transformer sales in North America prompted the company to devote more assets to this business and build it into a global player. As a result, Hammond Transformers monopolized the attention of William Hammond, while Robert Hammond managed the remaining enclosure and electronics businesses, along with Moloney Electric. Enclosure sales in particular were doing well in both the United States and Europe. Revenues totaled CAD 157.5 million in 1997 and net income increased to CAD 3.6 million. Transformer sales continued to grow, leading the company to create a dedicated sales and marketing staff for the group, and the engineering staff was beefed up in an effort to expand into new fast-growth markets. In addition, in 1998 the company's small case business increased in the European market when Hammond acquired the aluminum diecast box businesses of U.K.-based Eddystone and Zettox. To support this new business, Hammond opened a European operations center in Basingstoke, England, which also serviced the company's global catalog business in enclosures.

Sales improved to CAD 166.3 million in 1998 but tailed off to CAD 163.4 million in 1999, which was actually a strong result in light of a downturn in the Asian economy. Enclosures and distribution transformers performed well enough elsewhere to make up some of the difference, and the company was still able to turn a profit of CAD 3.3 million, only a slight dip over the previous year. The final year of the 1990s also brought the death of both Fred and Roy Hammond.

COMPANY DIVIDED: 2001

Hammond enjoyed a strong year to start the new century, recording sales of $186.6 million, nearly 15 percent higher than 1999's total, but this achievement was overshadowed by management's decision to split the company in two, spinning off the electrical transformer assets into a new public company called Hammond Power Solutions Inc. to be headed by William Hammond. His brother Robert would remain the chairman and CEO of Hammond Manufacturing, which would now focus all of its attention on growing sales of electrical enclosures in North America and the growth of the electronic packaging systems, racks, and transformers the company sold around the world. The two companies would share some of the same directors, and each would hold a 45 percent interest in Moloney Electric. The remaining 10 percent was to be held by Moloney's senior management team. This reorganization went into effect on the first day of 2001.

The primary purpose for dividing the Hammond business was to boost the price of the two companies' stock. Robert Hammond told the press, "This is a way of really unlocking value and getting things spiced up." For some time, moreover, the Hammond's two main lines of business had grown distinct, and instead of providing synergy, they hindered each other's growth, as both pursued separate marketing plans. A major factor in this drifting apart was the different voltages used outside of North America. While the enclosure business enjoyed strong growth in Europe, the transformer group struggled to keep pace in that market, enjoying much greater success in North America. The two Hammond companies were roughly the same size and both remained based in Guelph. Each retained four plants, while Moloney continued to operate its three plants. "It is still a family-controlled business," Robert Hammond noted. "It just means that we are each focusing on a piece of it.… What that does is give us the opportunity to really kick the entrepreneurial spirit up a notch and really get more focused."

KEY DATES

1917:: Company is founded by Oliver S. Hammond.
1925:: Hammond dies.
1927:: Company is named Hammond Manufacturing.
1978:: Third generation takes control.
2001:: Hammond Power Solutions is spun off.

In the first full year since the reorganization, Hammond Manufacturing experienced a drop-off in sales, due in large part to poor economic conditions in North America and around the world. Sales totaled CAD 59.9 million in 2001, compared to the CAD 64.4 million the same assets had generated the year before. With the economy continuing to struggle, sales continued to decline in 2002, to CAD 57.3 million. To make matters worse for Hammond, the Canadian dollar rose in value, hurting sales in the United States in 2003 and leading to reduced profits. Revenues slipped to CAD 56.6 million, and a net profit of CAD 1 million in 2002 turned into a loss of CAD 34,000 in 2003. Sales rebounded in 2004 and 2005, reaching CAD 67.2 million, fueled in large measure by strong sales in small electronic enclosures. To support this business, the company expanded its Cheektowaga, New York sales and administration office to include an injection molding operation to produce the popular enclosures.

Ed Dinger