The Oilgear Company

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The Oilgear Company

2300 South 51st Street
Milwaukee, Wisconsin 53219-2340
U.S.A.
Telephone: (414) 327-1700
Fax: (414) 327-0532
Web site: http://www.oilgear.com

Public Company
Incorporated: 1921
Employees: 750
Sales: $94.4 million (2004)
Stock Exchanges: NASDAQ
Ticker Symbol: OLGR
NAIC: 333996 Fluid Power Pump and Motor Manufacturing

Sometimes confused as an energy company, The Oilgear Company, based in Milwaukee, Wisconsin, is a global manufacturer of products that rely on fluid power—the use of pressurized fluids in the case of hydraulics and pressurized gas in pneumatics—to perform mechanical tasks. Oilgear products include hydraulic pumps, motors, valves, fluid meters, and the electronic systems needed to control fluid power. A wide variety of industries are customers, including automotive, chemical, petroleum, food, lumber, machine tool, metals, mining, plastics, and rubber. In addition to the United States, the company maintains facilities—combining manufacturing, service, and training—around the world, in Australia, France, Germany, India, Italy, Japan, Korea, Mexico, Singapore, and the United Kingdom. Sales engineering support is offered in more than 50 countries. Although a public company listed on the NASDAQ, Oilgear is 46 percent-owned by an employee stock plan.

Heritage Dating to the 1880s

Oilgear grew out of Bucyrus International, Inc., a Milwaukee-based manufacturer of mining equipment founded in 1880 in Bucyrus, Ohio. Its founder, Daniel P. Eells, originally bought the idle Bucyrus Machine Company to produce equipment for the railroads, such as locomotive drive wheels, car wheels and axles, and hand cars. But the company changed in focus in 1882 when two railroads contracted Bucyrus to make steam shovels for use in railroad construction. Eells sensed a business opportunity and began concentrating on the manufacture of excavating equipment, used not only for laying railroads but mining and public works projects as well. Business was so strong that Bucyrus outgrew its facilities and relocated to South Milwaukee County, which offered the company financial incentives to move to Wisconsin. Bucyrus excavating equipment was used in many of the major construction projects of the day, including the building of the Panama Canal. In 1911 it ceased to be a family-owned business when it merged with two competitors to become a public company, named Bucyrus Company. Along the way Bucyrus introduced a number of innovations as it achieved a reputation as a top-notch manufacturer of heavy-duty excavating equipment. It was no wonder that the company would be involved in the use of hydraulics, in particular fluid power, to provide power to the massive components of its equipment.

The Oilgear Company was founded in 1921, growing out of efforts at Bucyrus. According to the Founding Industries of Wisconsin project, it was founded by three men: E.K. Swigart, Walter Ferris, and W.E. Magie. Although never flashy, the company was a success from the outset, never suffering a loss, able to weather periodic downturns in the economy, including the Great Depression of the 1930s. Oilgear started out producing a single hydraulic press line, but gradually expanded its offerings to cater to a growing range of industries. During the 1950s it became a global player, opening offices in Mexico, Great Britain, France, Germany, and Italy, as well as Australia to serve the Pacific Rim. The company was best known for big systems offering high pressures. It was not until the 1970s that the company tried to grow by external means. It acquired Petrodyne Co., in 1972, followed by the purchase of Ball Manufacturing Inc. in 1978. A major market for the company was petroleum exploration, but when the offshore oil drilling market collapsed in the late 1970s, Oilgear once again proved its flexibility in finding new growth opportunities, in particular through the marriage of computer technology with hydraulics, setting the stage for the modern era of the company.

Oilgear was one of the first companies to use microprocessors with hydraulics, and in the early 1980s began to beef up its research and development budgets to build complete computer-control systems, buying only the memory chips, to find more industry applications for its products. One significant success story during this period was the introduction of large, high-pressure forging presses that sold for as much as $4 million, used to make aluminum windows, pots and pans, plywood, plastic automotive panels, car wheels, and construction machinery. On the other end of the scale, Oilgear made small hydraulic units and component pumps used in machine tools and riding mowers. Annual sales totaled about $40 million in the mid-1980s, but by the end of the decade increased by 50 percent to $61.8 million. Net income held steady around the $1.7 million mark, due primarily to the company's ongoing need to invest in R&D and make large capital equipment purchases in order to remain competitive.

Entering the 1990s with Little Recognition

As Oilgear entered the 1990s, it was described by the Milwaukee Sentinel as the Rodney Dangerfield of Milwaukee industry: "Despite a solid record of earnings and equipment that is used in everything from theme park rides to riding mowers and the production of aluminum windows, Oilgear may not get the respect it deserves. . . . its products are hardly well-known to the average consumer even in the company's home town." Oilgear's longtime president, Carl L. Gosewehr, explained, "We don't build an end product. You don't drive an Oilgear pump around your yard to cut your lawn." Nevertheless, the company was well respected in the hydraulics field, finding a way to prosper as a niche operator. "We go to the marketplace with specific features, unique features, things that offer the customer more. We fit only in those markets where people are looking for additional features," Gosewehr explained to the Sentinel.

With a recession hurting domestic sales, Oilgear's international business became a focal point in the early 1990s. At the start of the decade, overseas sales accounted for about 45 percent of all revenues. In addition to its three manufacturing plants—located in Milwaukee; Freemont, Nebraska; and Long-view, Texas—the company at this stage also operated plants in England and Spain as well as a licensed operation in Japan. To take advantage of projected growth in Latin America and the Pacific Rim, the Mexican and Australian offices were expanded. In addition, new one-person offices were established in Singapore and Brazil in 1992. (Several years earlier, in 1987, Oilgear had attempted to enter the Brazilian power fluid market by way of a joint venture, an effort that failed to take root.)

In 1991 Gosewehr retired, replaced by Otto F. Klieve, followed by 27-year Oilgear veteran David Zuege, the company's current chief executive, who took charge in December 1995. The former chief financial officer inherited the reins of a company that generated sales of $82.1 million and net income of $2.2 million in 1994, Oilgear's most profitable year since 1990. Despite changes in leadership, the company continued to follow its strategy of pursuing niche opportunities. While the main product at the time was piston pumps, new products were in development for the mobile market, for a new lawn mower product and sweepers, skidders, and drive fans for use in buses. The company also launched an effort to boost Asian sales and offset declines in the European market. Asian countries were still using old hydraulic technologies relying on water as a medium and were ripe to make the transition to Oilgear's more advanced products, which relied on oil as a medium. In early 1997 Oilgear established a manufacturing presence in the region. Rather than look to China like its competitors, Oilgear elected to enter the market through India. It forged a joint venture with Harman Engineers, an Indian automation and process controls manufacturer. Oilgear retained a 51 percent interest in the business, named Harman Oilgear Ltd. In addition to geographic expansion, the venture was intended to serve the consumer food processing sector, growing rapidly in Asia and expected to enjoy continued growth for the next decade. Oilgear also looked to expand in Central and South America by opening a sales and service facility in Brazil. Another area of opportunity for Oilgear was the return to oil drilling applications after 20 years. With oil exploration on the upswing, Oilgear began developing systems to moor and stabilize offshore drilling platforms. For the year 1997 Oilgear recorded sales of $90.9 million and net income of $2.7 million.

Despite softness in the U.S. fluid power industry in 1998, Oilgear enjoyed record sales, totaling $96.8 million. Nevertheless, profit margins were hurt by the drop in demand as well as problems in launching new products and a depression that visited Asia. Management responded with some cost-cutting initiatives, resulting in a drop in net income to $575,000 for the year. Most of the problems occurred at the tail end of 1998. Zuege told those gathered at the annual shareholders meeting that the fourth quarter was disappointing, adding, "That is one of my great understatements. We weren't disappointed. We were crushed with the results of the fourth quarter." The company suffered a fourth quarter loss of $682,000. To shore up the company, salaries were cut and some jobs eliminated, but it was clear that Oilgear still faced a period of uncertainty. Although Zuege felt the company may have experienced the worst of the bad times, he told shareholders, "We don't see a dramatic turnaround in the immediate future."

Company Perspectives:

For decades, we have developed hydraulic techniques to meet the unique needs and unusual fluid power problems of machinery builders and users worldwide, matching fluid power systems to a tremendous range of applications and industries.

While sales dipped to $90.7 million in 1999, cost containment steps taken in 1998 helped Oilgear to restore profitability, as net income increased 131 percent to $1.3 million. At the same time the company was able to increase the engineering and development budget to introduce enhancements and launch new products to help the company remain competitive during difficult times in the fluid power industry. The company also looked to improve its marketing by forming an alliance with East Aurora, New York-based Moog Inc., a global manufacturer of precision control components and systems. Products from the two companies were often integrated. The new arrangement called for Oilgear and Moog to do joint marketing and sales, making it easier for customers to do business with both of them while receiving a better system at a more competitive price.

New Century, New Challenges

Strong growth at the end of 1999 appeared to bode well for Oilgear as it entered a new century, but 2000 proved to be another difficult year. Sales improved modestly to $92.3 million, but earnings declined again, totaling just $800,000, due primarily to a softening in the U.S. fluid power market in the second half of the year and the depressed Euro and other undervalued currencies. Nevertheless, Oilgear continued to invest in R&D, well aware that a major reason the company was able to do as well as it did during tough times was its technological edge. Given that the United States now slipped into recession, as did the world economy, and the world fluid power market as a result was crippled, the company needed every advantage it could find. Sales fell to $82.6 million and the company posted a net loss of $1.7 million for the year. Cost cutting was once again the order of the day, the implementing of which actually resulted in a slight profit in the fourth quarter, preventing 2001 from becoming even a worse experience for Oilgear. While fat was trimmed, the company refuse to cut muscle, continuing to invest in product development. It also looked to serve customers wherever they could be found. In 2001 Oilgear formed a subsidiary in Japan to do business in that market, replacing a joint venture licensing arrangement that had struggled during Japan's own recession.

There were glimmers of hopes of increased sales in early 2002, but they proved to be a mirage. Simply put, the company made components that were part of end products, but if the end products were not being sold there were no customers for the components. Now even the cost-cutting measures affected R&D: In 2002 the company spent $1.7 million on product development compared with $2.1 million in 2001. Oilgear also closed one of its three U.S. plants, the facility in Longview, Texas. A company that had prided itself on an ability to turn a profit even under the most difficult of conditions now found itself awash in red ink. In 2002 sales dipped to $75.3 million and the net loss increased to nearly $5.5 million. When the economy began to recover in 2003, the fluid power industry lagged behind. Sales for Oilgear improved somewhat to $81 million, but the company lost another $1.8 million.

As the worldwide economy continued to rebound in 2004, Oilgear finally began to see a recovery in its business as well. The company was profitable in all four quarters, and the company returned to the black for the year, when it recorded sales of $94.4 million and net income of $423,000. Moreover, Oilgear enjoyed sales increases in the United States, Europe, and Asia. The company began 2005 with the highest backlog of orders in its history, boding well for Oilgear's continued comeback.

Principal Subsidiaries

Oilgear Towler GmbH; Oilgear Towler Ltd; Oilgear Towler S.A.; Oilgear Towler Australia Pty. Ltd.; Oilgear Mexicana S.A. de C.V.; Oilgear do Brazil Hydraulica Ltda.; Oilgear Towler Japan Co.; Oilgear Towler Polyhydron Pvt. Ltd. (51%).

Key Dates:

1921:: The company is founded.
1972:: Petrodyne Co. is acquired.
1978:: Ball Manufacturing is acquired.
1995:: David Zuege is named chief executive.
1997:: A joint venture is formed with Harman Engineers, a manufacturer in India.
2000:: The power fluid market crashes.
2004:: Oilgear returns to profitability.