Reshaping Albany International: As traditional markets contract, company's CEO engineers a new focus

MENANDS, Nov 23, 2008 (Albany Times Union - McClatchy-Tribune Information Services via COMTEX) -- AIN | Quote | Chart | News | PowerRating -- It hasn't been easy, but Joseph Morone has been changing the face of Albany International Corp., the longtime paper mill equipment manufacturer based in Menands.

Locally, the change has been drastic. Morone, Albany International's CEO, has overseen the closing of a factory in East Greenbush and the shutting down of much of the manufacturing operations at the company's historic headquarters on Broadway.

All told, 225 people lost their jobs locally in the past year.

Similar reductions have been made across North America and in western Europe, part of an effort by Morone to reshape Albany International's paper equipment business as its traditional markets contract.

Morone has also led an effort to expand in Asia and South America, two growth markets, and he has led the company into new industries such as aerospace.

Trusting those decisions and implementing them is difficult, Morone said. But that's not the hard part.

"The hard part is what it does to our people," Morone said of the reorganization. "It affects a lot of long-term, loyal, hardworking people who did everything that they could to make this company succeed."

Albany International makes large rolls of fabric called paper machine clothing used in paper mills. The company's paper machine clothing sales typically surpass $700 million a year, accounting for the majority of its $1 billion in annual revenue.

The road has definitely been rocky. Shares of Albany International, like many industrial companies and manufacturers, have lost half their value since the beginning of October, and the company's quarterly results have slumped during some quarters as it paid for plant shutdowns and laid off workers.

And Albany International has been hurt by the pain that its customers have endured during the global economic meltdown. One of those is Eclipse Aviation, a maker of small jet aircraft and the No. 1 customer for Albany International's engineered composites division.

Financial difficulties at Eclipse led to a $3.3 million third-quarter loss for the Albany Engineered Composites unit, which Morone is trying to build from $50 million in annual sales to $400 million.

Regardless of those challenges, analysts appreciate what Morone is doing,

Ned Borland, a stock analyst with Next Generation Research in Chicago who follows Albany International, says that Morone is a chief executive with "vision" who could see that the North American and western European paper markets were retreating, and that the company needed to respond or face overcapacity problems. Those trends accelerated with the current global economic downturn.

"It's not a high-growth industry," Borland said. "They've been very proactive in scaling down excess capacity and repositioning the business. He told everybody this is going to be a long process."

Paper industry experts say that the shifts Albany International is making toward Asia and other developing countries mirror the direction of the paper industry.

Frank Romano, professor emeritus at Rochester Institute of Technology and well-known expert in the printing industry, says that paper in the industrialized world has been replaced by the Internet and other electronic files, while Chinese paper manufacturers also have taken a lot of U.S. business.

"Print and paper volume is down in developed economies because of electronic substitution, outsourcing and manufacturing shifts to Asia," Romano said. "Evolving economies are growing, and print and paper volumes are growing as well."

Graeme Rodden, editor of Pulp & Paper magazine, says that paper manufacturing has moved to China, but pulp manufacturing has migrated to countries such as Brazil and Chile. Pulp is made from trees and is used by paper mills to make actual paper or cardboard.

South America has large eucalyptus plantations, and because of new technology, pulp can be made from this type of hardwood after only seven to eight years of growth, while softwoods like spruce grown in North America take 60 years to mature.

This has led to the creation of "mega" pulp mills in South America, which is why Albany International is focusing resources in Brazil. Rodden also noted that Albany International's two largest competitors, Metso Corp. of Finland and Voith AG of Germany, have also expanded into China and Brazil.

"A lot of mills find it's cheaper to import pulp from South America," said Rodden.

Reorganizing the company's paper machine clothing business is part of Morone's "cash and grow" strategy, which involves using cash from the paper business to fund higher growth industries such as its move into aerospace through the engineered composites division.

And although the problems with Eclipse have pushed back expectations that the engineered composites unit would be profitable by now, Morone says he is not deterred because it's all part of a long-term strategy.

Morone says Albany International is spending heavily on its aerospace business, with the hope that there will be great rewards in five to seven years. He has estimated the business can reach $400 million annually some day. That won't be hurt by the problems at Eclipse, which Morone believes will clear up by next year.

"It hurts us in the short term, but it doesn't have any effect on the long-term prospects of this business," Morone said.

Communities where the unit, known as Albany Engineered Composites, has manufacturing facilities are thrilled about the prospects for growth. Albany International has announced expansions in Rochester, N.H., and Boerne, Texas.

Karen Pollard, economic development manager for the city of Rochester, says that Albany Engineered Composites' 129,000-square-foot facility there "is a very big deal" for the city, and that it has already expanded several times. The next expansion will add 100,000 square feet.

"This one coming up will be the biggest one yet," Pollard said, "We're very excited."

Larry Rulison can be reached at 454-5504 or by e-mail at lrulison@timesunion.com.

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