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A leisure-time company diversifies

Recently, life at AMF Inc. has not beeen all fund and games. The boating business hit the skids this spring after the Department of Energy threatened a ban on weekend powerboating; the company's Harley-Davidson motorcycle division has lost some of its market share to the Japanese; the bowling business has stopped growing; and, the tennis boom has peaked.

But, because the company has managed to diversify somewhat into "countercyclical" business in the oil service and electronics areas, the Westchester-based company is riding out the recession with some wind in its sails. For example, in the third quarter, the company reported earnings of $12, 749,000, or 62 cents per share, compared with $14,482,000, or 71 cents per share , for the same quarter last year. And for the year, predicts chairman W. Thomas York, the company will come out with "something of a plus year."

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To those familiar with AMF, it might seem strange for a company that is closely associated with bowling, tennis rackets and skis (Head), sailboats (Alcort), yachts (Hatteras), motorcycles, and golf clubs (Ben Hogan) to be interested in directional oil drilling and microprocessor drives.

But AMF, like the proverbial tiger, has been trying to change its stripes.

This has entailed a combination of new acquisitions and a high level of reinvestment in its industrial products divisions. For example, this year AMF will spend $97 million on capital projects, of which $31 million will go to one division, tuboscope, which is involved with oil pipe inspection and coating services.

AT the same time, the company has announced a preliminary agreement to buy Scientific Drilling International, a privately held Irvine, Calif., supplier of directional drilling services for 2 million sares of AMF stock worth $40 million as of Oct. 23.

Also, the company has agreed in principle to acquire the assets of Immuno-Reagents Associates Inc. (IRA), a small San Antonio, Texas, speciality medical products company. IRA will become a part of AMF's Cuno Division, a manufacturer of filtration devices.

The diversification so far has paid off. In 1979, AMF's industrial division constituted over 43 percent of the company's profits while representing 34 percent of its revenues. This year, Mr. York predicts, the industrial division will represent 38 or 39 percent of its revenues and over 50 percent of its profits. Tuboscope for the past four years has had a compound growth rate of 22 percent compared with 10.9 percent in the leisure products group.

The aim of the diversification, Mr. York said in an interview, is to provide the company with he terms "balanced growth." He explained: "We would like a portfolio of companies, which if we manage correctly, will have growth even in bad years. We want a portfolio of marketplaces."

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At the same time, he says the company is trying to improve its credit rating and balance sheet. Since Mr. York is convinced that upheavals in the credit markets will become more commonplace, it will pay to have a strong balance sheet -- especially since AMF will need financing for its future growth.

So far, the company's moves have won favorable comments from some securities analysts. Norman Golden, vice-president at Furman Selz Mager Dietz & Birney Inc., says the company's emphasis on its industrial technology will allow it to participate in markets which are growing faster and offer higher returns than its leisure businesses. "The company is building on its existing strengths," he says, "since it has been in the oil field service business with its Tuboscope business since the 1960s."

Mr. Golden says the company's new look is the result of the emergence of Mr. York as president five years ago and chairman two years ago. Since Mr. York's backround is financial -- he joined AMF in August 1968 as assistant comptroller and director of corporate accounting -- he makes decisions based on return on investment and not just revenue growth. Thus, in Mr. Golden's view, he has successfully sorted out what segments of the business should receive capital contributions and where the company should put its emphasis.

Harold Vogel, vice-president of Merrill Lynch, Peirce, Fenner & Smith Inc., also believes that AMF's new emphasis is well placed. "I agree with their strategy," he says, but adds, "In order to be really significant for the corporate structure it will take at least 3 to 5 years. There will not be an immediate boost from this area." In fact, Mr. Golden notes that the acquisition of Scientific Drilling should dilute AMF's earnings by 6 to 7 percent.

Mr. Vogel of Merrill Lynch rates the stock neutral over the short term, and OK to buy over the long term; and Mr. Golden is recommending purchase of the stock.

At the same time that the company has been expanding into new areas, it has been consolidating its older businesses. In recent days the company has decided to close its Little Rock, Ark., bicyle plant and consolidate production at its Olney, Ill., plant. In the power boat division, production of Crestl'ne, Slickcraft, and Robalo powerboats have been consolidated into two facilities. The company also will eliminate production of the AMF Paceship, a 23- and 26 -foot sailboat, manufactured in Waterbury, Conn.

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