Seeking Alpha
Long only, growth, momentum, special situations
Profile| Send Message|
( followers)  

Viewed from the outside, Douglas Dynamics (NYSE:PLOW) has a very solid, but unexciting, business in a predictable niche market. They make snowplows for light trucks. They also make salt and sand spreaders.

They have a robust network of more than 1,500 dealers, mostly in the U.S. and Canada, but also abroad. They make equipment under six different brands: Blizzard, Western, and Fisher for the plows and SnowEx, SweepEx, and Turf Ex for the accessory lines. Their market cap is less than $350 million and they pay a dividend that yields about 5.4% per year. As an income play alone, they are highly respectable for a company that went public in 2010.

Their customer base ranges from "light duty" to"extreme duty." That latter category is getting a workout this year due to the Polar Vortex, especially in the Eastern U.S. where they calculate 80% of their customers are. Having been in the business since 1948, they know that the light winter years are usually followed by record-breaking snowfalls in later years.

The public face of the company is Mark Adamson, the Vice President of Sales and Marketing. He recently did an interview on BlogTalkRadio with John Allin, whose program is called "Managing Snow and Ice." From this program we learn that PLOW also sells in Europe, China and South America. The company has built itself by acquisitions, and most recently acquired TrynEx, best known for its SnowEx, SweepEx and TurfEx equipment. This extends its network of sales outlets to many other nations.

The company has also followed the "show, don't tell" model of marketing with its Fisher brand of snowplow, with YouTube Videos including one that compares its most recent snowplow to a competing model from competitor Boss. For this brand, at least, they have a very aggressive, if smooth, approach to the market.

I like growth even more than I like income. As someone who used to be a marketing and branding consultant, I have to wonder if they have considered other ways to increase their sales, distribution network, and presence in the marketplace. While each of the snowplow brands has a long and honorable history and a following, three brands is two too many.

Migrating the Western and Fisher brands (labels which don't exactly cry out "snow removal") under the Blizzard umbrella would allow greater economies of scale and more efficient marketing and distribution. The other brands are function-specific, but could keep their present names and simply add "Blizzard" as a frontpiece.

The final step in this rebranding would be to change the name of the company to "Blizzard." "Douglas Dynamics," while sounding very high-tech and space-age in the ear, doesn't really sell anything. What does the name mean? Who thinks about it when they want this kind of equipment? (Note: As an industry leader, it does enjoy a certain amount of goodwill and reputation in the industry, so a transition cannot happen overnight - and may already be planned.)

If I were one of those billionaire bully investors who like to mess with other people's businesses, I would accumulate some shares and then start harassing management with suggestions and demands that would put them off their game so I could short the stock, or get buy-backs that would drain capital needed for future expansion and demand seats on the Board and otherwise pester them. But I am not one of those guys,

I'm long PLOW, mostly for the income and because the harsh winter we are currently experiencing points to a surge of sales for them as they expand their dealer network and concentrate their marketing efforts in such a way that they become dominant in their market niche. Light truck snowplows would have sold very well in Georgia last month if any were available. The company has no dealers there.

I suspect that this will be an item purchased against future need and repeat sales will be few and far between unless the current wild weather becomes an annual event. That's not something I'd bet against. Selling snowplows in Georgia and other deep-South states may seem counter-intuitive, but fortunes are made by selling things that people didn't know they would need.

I've never been in the heavy-equipment business, but I do know service industries, and PLOW's primary market is small and medium businesses that remove snow and spread salt and sand. The dealer network for all of these brands is thin on the ground; it needs to be much larger.

The various websites have a lot of very good videos and other presentations, but I know these customers. They are geeks at heart. They want to go and kick the tires, and many of them can't afford the time to go to trade shows. The YouTube videos fill a gap, but actually having product immediately available at the dealer level will increase sales at the lower end of the range.

Dealers who also sell trucks are an obvious choice. West of the Mississippi, where the company has few dealers, they will find many small towns where a local truck dealer would welcome them as a sideline. The problem will be matching these dealers' truck inventories with the many choices offered by the company.

The company plans to roll out fifty new models across all their product lines. While snowplows are not a one-size-fits-all proposition, one gets the feeling that there may be some duplication. Consolidating the brands will also allow for economies of scale in parts, service, and marketing. Savings realized there can be used to put more salespeople in the field to evangelize for the new products.

I view PLOW as a long-time hold, and for me that means a year or more. That nice dividend allows me to put it in the income portion of my portfolio while waiting for sales to dramatically increase. I may be wrong about that. It may never happen. In that case, I still have that very respectable dividend. I will probably go even longer for that alone.

This brutal winter we are experiencing will break or wear out a lot of snowplows. PLOW has well established brands and reputation for quality and service. It has the only two-year warranty in the business. I suspect that they will be expanding production hours and perhaps even their three plants to keep up with a short-lived demand caused by the Polar Vortex. If they are able to do that, they should be able to increase market share without sacrificing product quality or margins.

To all of the above I add the usual caution that what works for me may not work for you, and you should consider your own investment circumstances and objectives before investing in PLOW or any other security.

Disclosure: I am long PLOW. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Will Douglas Dynamics Plow Its Way To Greater Sales And Profits?