Lawson Products to eliminate 100 jobs
Lawson Products announced a strategic restructuring plan that includes eliminating 100 positions and negotiating a new $40 million credit facility.
All of the initiatives are designed to strengthen the company’s ability to compete in the MRO marketplace and positively impact its operating results, according to a company statement announcing the moves. When fully implemented, the actions will create a "simplified and flattened organizational structure" and are expected to generate annual savings of approximately $20 million.
In conjunction with these initiatives, the company said it has received a commitment letter from its lender to replace its existing credit facility with a new five-year, $40 million facility, which provides additional flexibility to meet financial covenants going forward. Lawson Products also said it anticipates it will record pre-tax charges for the second quarter of approximately $40 million, of which $33 million will be non-cash.
“We have made significant progress over the past 18 months in the transformation of the company, including the implementation of our ERP system, commencing the sales-channel transformation and optimizing our distribution network,” said Thomas Neri, president and chief executive officer. “At the same time, with an increased focus on MRO, we have consolidated a number of units and sold two non-core operations, which represented approximately $80 million of annual revenue at the time of their sales.
“It is necessary, therefore, that we adjust our cost structure to better balance against our current revenue base in order for us to improve our operating results. Accordingly, the company is taking the steps it believes necessary to build the foundation of operational excellence required to succeed.”
Cost structure. The company plans to eliminate approximately 100 positions (11 percent) from its current workforce. Several senior executive positions, including the open chief operating officer position, are among those being eliminated. The workforce reduction, which does not include a reduction in the company’s sales force, is expected to result in a one-time severance charge of approximately $7.0 million for the second quarter of 2012. The company also expects to complete other cost-cutting measures such as a rationalization of inventory and reduction of controllable costs such as travel, marketing and net outbound freight expenses. In total, these cost-cutting measures, when fully implemented, are expected to generate approximately $20.0 million of net annualized savings.
Operating Efficiency. The company is taking several steps to improve the efficiency of its operations, including simplifying its business processes, flattening the organization (with fewer vertical functions and a streamlined reporting process) and recapturing lost margin opportunities. As previously announced, the company is streamlining its customer-fulfillment process and inventory management with its consolidation of three Illinois locations into a single operation in McCook, Illinois, which will be the hub for the Midwest.
Revenue Enhancement. Lawson Products said it expects the cost-saving and efficiency benefits derived from the restructuring to support, and help increase, its focus on several initiatives designed to drive revenue. These include emphasizing target accounts, core products and service delivery (especially vendor-managed inventory), accelerating its sales-transformation process, completing its tier-pricing model and launching its e-commerce site.
Revised Credit Agreement. The company has received a commitment from its lender to enter into a new five-year, $40.0 million credit facility that will provide greater flexibility to meet its financial covenants. The facility will replace its existing $55.0 million credit facility.
Neri said the company’s strategic restructuring builds on earlier activities, including the consolidation of activities aimed at tightening the company’s MRO focus, the implementation of SAP, which went live in August 2011, as well as the network-optimization and sales-transformation initiatives. He added that Lawson Products has begun to realize benefits from the SAP implementation.
“Looking to the future, we believe this restructuring will enable the company to better leverage its clear competitive advantages and enhance its operating results,” Neri said. “Our deep product knowledge and product-application expertise; value-added services, such as inventory management; high penetration of private label products, and broad geographic sales coverage, will continue to highlight Lawson Products’ differentiated positioning in the fragmented MRO industry.”
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