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Gibraltar is taking strategic turn

Brian J. Lipke has seen the future of Gibraltar Industries, and it's in building products.

That's a sea change for a Hamburg-based company that used to be called Gibraltar Steel and still gets about a third of its sales from its processed metal products business.

But Lipke makes it clear that Gibraltar's remaining steel business is taking a back seat to its faster-growing and more profitable building products business.

"Clearly, we're moving the business in a direction of a pure building products play," he told analysts during a conference call last week. "We think we've created a good platform to drive the business in that direction."

Indeed, most of Gibraltar's acquisitions over the last few years have been aimed at bulking up its building products business, either by adding new products, pushing into new geographic markets or adding a sizable line of commercial products to act as a counterweight to the strictly residential focus the business originally had.

For now, Lipke says Gibraltar is concentrating on making the processed metals business more profitable -- a step that included the closing of its Kenmore Avenue factory earlier this year -- a move that could help boost profit margins at its remaining strip steel business in Cheektowaga and Cleveland by three percentage points.

"By combining these from three [factories] to two, we're going to utilize these facilities much more efficiently," Lipke says. "It's not market share loss. It's not a decline in volume. It's simply that we've got these plants in a position where we can do more with less."

At a minimum, it seems that the processed metals business will become a steadily smaller part of Gibraltar's overall business as the focus intensifies on the faster-growing construction products segment.

"It's still an important part of our business," says Kenneth P. Houseknecht, a Gibraltar spokesman, who points out that the processed metals segment generates a lot of cash. "It's a business that has allowed us to fund growth in the building products business," he says.

But Lipke isn't guaranteeing that the processed metal products business always will be part of Gibraltar's future.

"That's a question that will be answered as we move into the future," Lipke says. "Right now, our focus is on taking that business and improving its operating performance and returning it back to historic levels."

"As we go down the road, we'll see what develops," he says. "Right now, every steel mill on the planet is looking for another steel mill to buy. Recently, there has been some activity pointed at steel mills looking to buy up steel processing companies. I don't know how far that all is going to go, but we'll pay attention to it."

A big reason for the focus on construction products is that investors tend to place a higher value on companies in that industry, compared with the more cyclical steel processing business.

That's long frustrated Lipke and other Gibraltar executives, who see the company being valued at levels that are low for steel processors and laughably low for a business that gets two-thirds of its sales from building products. Gibraltar's stock now trades at a price that's equal to about 13 times its earnings over the last year, almost a third less than the multiple of 19 that the average metal processor commands and far less than the 23 times earnings that the average building products firm trades at.

Beyond that, there simply is more growth opportunities in the nation's massive construction products industry, compared with the much smaller and already consolidated processed metal products market, Houseknecht says.

And Gibraltar has always been a company that goes for the growth.


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