Hawkins Chemical, Inc.

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Hawkins Chemical, Inc.

3100 East Hennepin Avenue
Minneapolis, Minnesota 55413
U.S.A.
(800) 328-5460
Fax: (612) 331-5304

Public Company
Incorporated: 1938
Employees: 142
Sales: $83.3 million (1995)
Stock Exchanges: NASDAQ
SICs: 2819 Industrial Inorganic Chemicals, Not Elsewhere Classified; 2842 Polishes & Sanitation Goods; 5084 Industrial Machinery & Equipment

Hawkins Chemical, Inc. is a regional distributor of bulk chemicals, serving customers in the eight Upper Midwestern states of the United States. Although Hawkins’s sales of $83.3 million in 1995 make it a niche player in the chemical distribution industry, the company has gained attention for its ability to generate an admirable profit margin of 5.3 percent, almost 4 percent higher than that of Univar, the nation’s largest publicly traded chemical distribution company. Hawkins mixes, distributes, and markets more than 1,800 industrial and high-grade laboratory chemicals. The company’s three subsidiaries and three divisions serve customers in the areas of steel manufacturing, pesticide and fungicide manufacturing, municipal water and waste treatment, and swimming pool maintenance. (Its subsidiary, the Lynde Company, is the largest distributor of swimming pool chemicals in the Upper Midwest.) Hawkins also operates two terminals along the Mississippi River, where it receives, stores, repackages, and blends various chemicals in bulk quantities. These chemicals are then distributed through the company’s warehouses and subsidiary operations in Minnesota, Wisconsin, Iowa, Montana, Nebraska, Wyoming, and North and South Dakota.

Early History

Hawkins Chemical was founded in 1938 as a partnership between two brothers, Kent and Howard J. Hawkins. According to company materials, facilities for their new chemical sales company consisted of “four desks, two chairs and 1,000 square feet of space.” The brothers had a freewheeling attitude toward marketing, selling their chemicals, as they said, through a process of “carefully selected customers by looking for smokestacks.” The process worked and business began to grow. In 1941, the brothers dissolved their partnership and Howard J. Hawkins became sole proprietor of the company. Soon after, Howard J. moved the business to a new facility with 1,500 square feet of operating space, 50 percent larger than the original.

In the mid-1940s, Fred Hoffman joined Hawkins Chemical as bookkeeper and office manager. Hawkins left the company he founded to serve in World War II, handing the reigns over to Hoffman. During that time, recalls Hawkins, “Fred Hoffman established many of the procedures we still use today. He ran the company while I was in the Armed Forces. I was thankful to him to have a job and a company to come back to.” As the economy grew after the end of the war, so did Hawkins Chemical.

By 1948, the company had outgrown its space and moved to its present location on East Hennepin Avenue in Minneapolis. Around that time, Hawkins hired several new employees to work in sales and management. “We had a very direct method of selling in those days,” recalls Norm Anderson, the company’s first full-time sales representative. “We’d walk through the warehouse, list the products and then start calling people to sell what we had.” Anderson and the other men hired at that time helped establish the company’s reputation in Minnesota. They later became the nucleus of the company as it expanded its sales base from Minnesota to eight Upper Midwestern states.

Vel-Tex Partnership in the 1950s

In 1952, Hawkins Chemical was restructured as a corporation. As the company expanded its sales territory, its continuous improvements of its sales and delivery network became the foundation of its growth. In 1955, Hawkins Chemical entered into an agreement to serve as sales agent for Vel-Tex Chemical, a manufacturer and marketer of industrial bleach. Hawkins was one of the region’s largest suppliers of caustic soda, the basic component in bleach. Vel-Tex had perfected a method of improving the quality of bleach and “realized the need for a sales organization to support [its] manufacturing capabilities.” The two developed a profitable relationship. Hawkins supplied the caustic soda, Vel-Tex manufactured the bleach, and Hawkins then sold and delivered the bleach using its already-established sales and distribution network.

In 1958, Hawkins and Vel-Tex firmly established their partnership when Vel-Tex developed a method of making bulk tank truck deliveries of liquid caustic soda and began delivering liquid caustic soda to Hawkins customers. By the end of the year, the two companies had entered into an agreement to jointly offer new bulk sales and delivery services to the Upper Midwest region. Hawkins installed its first storage tank for refrigeration grade anhydrous ammonia and, with Vel-Tex, designed a new system for packaging chlorine in 150-pound and one-ton cylinders.

Hawkins’s sales growth necessitated the expansion of its warehouse facilities. In 1961, several additions were made to the company’s storage facilities, including a separate storage area for flammable chemicals. Vel-Tex also moved some of its facilities to a barge terminal on the Mississippi River in St. Paul, Minnesota. In 1964 Hawkins acquired its first two long-distance semi-trailer delivery trucks. The two companies continued to work closely together, and in 1968 they jointly built the company’s first 680,000-gallon storage tank for liquid caustic soda. During the period from 1958 to 1968, Hawkins’s sales force grew steadily, and by the company’s 30th anniversary, Hawkins’s sales territory covered the states of Minnesota, Wisconsin, North Dakota, South Dakota, and Iowa.

Growth Through Acquisition in the 1970s

In 1971 Hawkins acquired its long-time partner, Vel-Tex. The company became a wholly owned subsidiary of Hawkins and the name of its operations on the Mississippi River was changed to Hawkins Terminal No. I. Shortly after the acquisition, Hawkins added two 680,000-gallon storage tanks at the terminal and built a pumping system to transfer liquid caustic soda from river barges to Hawkins’s storage tanks. Other improvements to the company’s storage and delivery systems included new storage units for a variety of chemicals, new stainless steel tank trucks, and new loading bays and 500 feet of railroad tracks at its main plant.

In 1972 Hawkins Chemical made its initial public offering. That year, the company acquired two subsidiaries: the Lynde Company, a custom chemical formulator that specialized in swimming pool chemicals; and Feed-Rite Controls, Inc., a producer of water treatment chemicals and equipment that provided on-the-spot services for industrial and municipal water treatment systems. Hawkins merged sales functions for the two companies, but Lynde Company continued to blend its own chemicals. Sales in 1972 rose to a record high of $7.2 million, a 17 percent increase over 1971. The increase was attributed to improved sales to sewage treatment plants brought about by tighter water treatment standards mandated by the U.S. government and also to the company’s expanded sales base in Wisconsin and Iowa, brought about by the acquisition of its two subsidiaries.

As the company expanded geographically, Hawkins continued to focus on its services, knowledge of chemicals, and delivery capabilities, believing them to be “only strengths upon which to build in [its] highly competitive business.” In the early 1970s, the company established the Hawkins Chemical Sales Division to manage this process better. The company continued its slow but steady growth, keeping expenses down and increasing net income year by year. By 1977, Hawkins had 80,000 square feet of warehouse storage capacity and the capacity to store 2.5 million gallons of liquid chemicals. Sales that year reached $18.8 million, up 19 percent from 1976, and net income increased 12 percent to $585,455, boosted by strong sales in Hawkins’s Lynde Company subsidiary.

In 1979, Hawkins expanded its sales into Montana and Wyoming through the purchase of Mon-Dak Chemical Inc., a regional supplier of industrial, dry cleaning, laundry, and janitorial chemicals based in Washburn, North Dakota. Two years later, Hawkins acquired Gordon Terminal, a chemical storage and transfer facility located on the Mississippi River in South St. Paul, Minnesota, and renamed it Hawkins Terminal No. II. The company continued expansion through acquisition of smaller operations. These included Dakota Chemical, Inc., a supplier of water treatment chemicals and equipment based in South Dakota, and Arrowhead Chemical, a former water treatment distributor for Hawkins with offices and warehouse facilities in Superior, Wisconsin.

From 1983 to 1987, Hawkins experienced a slow but steady annual growth of 5.7 percent. Despite its numerous acquisitions, Hawkins took a conservative management approach. Most of its growth was supported by internally generated funds as opposed to debt; in 1987, long-term debt was only 0.5 percent of long-term capitalization. Sales hit a record high of $30.9 million in 1985. The following year they slipped to $30.7 million due to an economic slump in the region, but earnings remained a respectable $1.3 million. Two years later, Hawkins celebrated its 50th anniversary with net income of $1.7 million on sales of $42 million.

Company Perspectives

Our mission is to exceed our customers’ expectations as a high quality, service oriented chemical supplier. We will adapt quickly to the changing needs of customers with a keen focus on technical expertise, teamwork, safety, profitability and responsible care of the the environment and our community.

Hawkins continued to focus on expanding its infrastructure, adding warehouse facilities at its Dakota Chemical operation with the goal of broadening sales in Nebraska, Wyoming, and South Dakota. In 1989, the company acquired Tessman Seed, Inc., a supplier of lawn and garden seeds, fertilizers, and chemicals to lawn and garden centers throughout Minnesota and North and South Dakota. In 1990 revenues leapt 31 percent to $60.37 million, fueled primarily by an additional $13.1 million brought in through the acquisition of Tessman Seed. Net income that year was a record $3.16 million.

Challenges in the 1980s and 1990s

During the late 1980s and early 1990s, a number of external factors affected Hawkins’s operations, but not necessarily the company’s bottom line. One major variable in Hawkins’s sales was the weather. In the late 1980s, sales of caustic soda declined drastically during the summer months due to extremely low water levels on the Mississippi, which prevented barges from delivering the product to Hawkins’s river terminals. The company resorted to shipping caustic soda from suppliers in Iowa, Illinois, and Wisconsin and experienced very little disruption of service.

At the same time, the company benefited from a trend among large chemical manufacturers to market their products through chemical distributors such as Hawkins. In 1990 Hawkins’s internal operations underwent a slight transformation as the company adjusted to accommodate “a higher percentage of through-warehouse (as opposed to direct manufacturer-user) transactions.” Management attributed the transformation to “a trend among customers to order smaller quantities more often in order to accommodate just-in-time inventory replenishment programs.” Another factor that management attributed to this transformation was greater concern among its customers about the quantities of chemicals that were desirable on their premises. Hawkins welcomed the changes, stating that the situation helped create a stronger customer-supplier relationship and generate higher margin percentages, despite creating higher operating costs.

Hawkins experienced another record year in 1991, with revenues of $65.6 million and income of $3.5 million, up 11 percent from the previous year. Sales decreased the following year to $63.5 million, but net income increased 8 percent to $3.7 million. A major factor in the sales decline was the encroachment of national distributors on Tessman Seed’s business. Hawkins responded by restructuring the subsidiary and reducing inventory and staff by 40 percent. Chemical treatment sales were also down by 60 percent that year, due to an unusually cool summer that adversely affected the company’s water treatment business. The Lynde Company, Hawkins’s swimming pool chemicals subsidiary, experienced its worst sales in 15 years.

In 1993 Hawkins acquired Industrial Chemical and Equipment, a 50-year-old company that supplied chemicals, equipment, and technical services to customers in the metal finishing and electronic industries. Severe weather affected Hawkins’s operations again that year. Flooding on the Mississippi prevented the company’s river-front terminals from receiving caustic soda via river barges for almost three months; the company successfully responded by transporting caustic soda via national highways from Illinois, Wisconsin, and Iowa. Continued cool weather during the summer months also affected Hawkins’s swimming pool and water treatment operations. Revenues for 1993 reached $65.9 million, slightly above 1991 levels and earnings climbed to $4.4 million. Hawkins’s improved profit margin was attributed to its acquisition of Industrial Chemical and Equipment as well as to an increase in high-margin services offered to water and waste treatment plants.

Focus on “Product Stewardship” in the 1990s

In the 1990s, as government regulation of the chemical distribution industry became more stringent, Hawkins developed a strategy of product stewardship that it believed would carry it successfully into the 21st century. “Only the strongest distributors can afford to make the investments in systems, facilities and training necessary to meet these [governmental] demands,” management stated in the company’s annual report. Its goal was to focus on “inheriting the markets of those who cannot or choose not to meet these challenges.”

The company’s model of stewardship was put to the test in early 1995 when a fire broke out at a Minneapolis office/ warehouse facility used by the Lynde Company. The fire destroyed the facility, but, because of a newly constructed containment wall, the contaminated water “collected in the parking lot of the warehouse and did not flow into the streets or storm sewers that feed rivers and streams.” Hawkins was able to replace lost inventory quickly and suffered only minor detrimental effects. Hawkins was not able to contain the vapors that escaped from the fire, however, and a number of residents in neighborhoods near the plant filed a lawsuit charging that the fire damaged their health and property. The company paid $335,000 in settlements and legal costs, but was still engaged in a lawsuit against its insurer who denied coverage, stating that its coverage did not extend to “bodily injury or other losses caused by a release or escape of pollutants.”

Under the conservative direction of Howard J. Hawkins, Hawkins Chemical has established itself as a strong niche player in the chemical distribution industry. Although much of the company’s growth has been through acquisition, Hawkins avoided the merger and acquisition craze of the 1980s by focusing on smaller, private companies that received little if any attention from Wall Street. In the 1990s, the company continued to focus on quietly improving its operations as a means to improve profits. In 1994, Hawkins completed construction of a facility for its Industrial Chemical & Equipment Division designed to improve efficiencies in transportation and communication. In addition, the company sold its Tessman Seed subsidiary “to better focus on its core businesses.” Its 1995 earnings were a respectable $5.3 million on sales of $83.3 million.

Hawkins ventured into product development in the mid-1990s, which it hoped would provide a new venue for growth. In 1995, it received a patent for its Cheese-Phos liquid sodium system, which it believed could “substantially add to the profits of the corporation.” Used primarily in the manufacturing of processed cheese, Cheese-Phos allows liquid sodium to be stored at room temperature, a drastic improvement over previous systems that required liquid sodium to be stored at temperatures between 130 and 160 degrees Fahrenheit.

With the approach of the 21st century would come the time that Howard J. Hawkins would probably relinquish control of the company he founded. As many of the company’s board of directors and management have been with the company for decades, it may be safe to assume that the company will continue its conservative but steady growth.