Ameron Pumps Out Strong Gains on Wall Street, Quarterly Profit

Sustained high oil prices have turned an old-line industrial supplier, Ameron International Corp. of Pasadena, into one of the new stars on Wall Street.

Shares of Ameron have risen 74% over the last year, hitting a record high of $57.51 Friday on the New York Stock Exchange. Most of the gain has come since January, the grimmest period for the stock market in a decade.

What makes Ameron different from the growth companies typically favored by investors is that its sales have barely budged in three years. The company took in $551 million in revenue last year, just 1% above what it collected in 1999 and about $1 million less than its sales in 1998.

Investors are looking at its strong profit growth--earnings jumped 66% to $1.6 million, or 41 cents a share in the first quarter--and Ameron’s position in some of the hottest markets of the industrial sector.

Ameron is a major manufacturer of corrosion-resistant piping made from fiberglass composite, which is used to extract lower grades of oil from aging wells. The pipes are hardier than the alloys and steel often used in the oil industry, which is important because sulfuric acid often develops when producers pump water into the older wells to increase production. The pipes also are used to transport corrosive oil and other chemicals from wells to storage areas and to refineries.

“With oil over $20 a barrel for a period of time now, there is huge demand for pipe to get the low-hanging fruit out of the wells,� said Mike Niehuser, an analyst with Red Chip Review in Portland, Ore.

Ameron also looks to get a boost as major oil companies, benefiting from their own strong profit growth as petroleum prices remain high, launch an expected cycle of spending on big capital projects such as oil rigs. Ameron makes special fire- and rust-resistant marine paints and coatings used on everything from the Bay Bridge in San Francisco to oil rigs in the Gulf of Mexico.

“Although they have been making good money, there has been a delay in the types of capital expenditures by the oil companies that we will begin to see in the second half of this year or next year,� said James Marlen, the native of Chile who became Ameron’s chief executive in 1993.

The coatings division hasn’t had a stellar performance in recent years. Sales last year were $187 million, well below the previous year and a 13% decline since 1998. Ameron has closed three coatings factories, 15 warehouses and slashed the division’s work force by 25% to about 400 workers over the last four years, Marlen said.

Water projects is another area where Ameron is looking to make gains. Its Water Transmission Group in Rancho Cucamonga is the top producer of piping for water systems in the Western United States. Customers include the Metropolitan Water District and the California Department of Water Resources.

“What’s good is that the water transmission projects primarily have municipalities and government agencies as customers and it is a segment completely independent from what is going on in the oil industry,� Niehuser said. “There’s lots of demand and lots of jobs being bid.�

The division has built an order backlog of $100 million which Marlen expects to grow even larger as the year progresses.

“We think the potential for growth in California is particularly high because of the need for infrastructure and the population growth,� Marlen said.

The company’s only weak spot is Hawaii, where a slow economy has stalled the types of large hotel and office projects that buy concrete from Ameron Hawaii, the island state’s largest supplier of concrete and concrete piping.

Founded in 1907, Ameron was long known as the American Concrete Pipe Co. before changing its name to Ameron more than four decades ago. It added “International� in 1996 to reflect its geographic diversification.

Besides its pipe and coatings business, Ameron also is the largest producer of concrete street light standards in the nation and it has a half-interest in a Rancho Cucamonga steel mill that makes rebar for construction.

Ameron is just one of several Southern California companies that look to benefit from new investment in energy infrastructure and other projects.

Shares of Jacobs Engineering Group, the big Pasadena-based engineering firm, have jumped 44% this year. Fluor Corp., the Aliso Viejo engineering and construction firm, are up 67% this year.

As more regions deal with electricity shortages, aging water and sewer systems and higher gasoline prices from oil refinery breakdowns, investors are betting that the United States is on the verge of a building boom for power plants, refineries, pipelines and other such big projects.

“It just so happens that many of these areas are hitting right now,� Niehuser said.

How much gas is left in Ameron’s rally is uncertain.

Niehuser said that the market probably has priced Ameron correctly.

“The market has responded. . . . But it is difficult to justify that there will be a continuation of the growth the stock has seen in the recent past,� he said.

Earnings growth will now dictate how much upward momentum is left. Marlen believes sales will grow in the 7% to 12% range annually. He did not project earnings, but noted that Ameron has a low cost structure, which should continue to aid profitability.

“I think we will have another record year,� Marlen said.

Marlen noted that even with the recent jump in Ameron’s shares, the stock still trades at about 8.5 times earnings. Although that’s typical for the building products trade, it’s just over a third of what Jacobs Engineering trades at and only a fraction of the Standard & Poor’s 500 index at 28.

Valuing Ameron as an infrastructure play might warrant a higher multiple and stock price, he said.

For now, however, Marlen said he plans to keep the company focused on keeping its cost structure low and transforming expected growth in sales into higher earnings. Ameron’s profit rose 14% to $25 million, or $6.41 a share, last year, even though sales were flat.

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In the Pipeline

While most other stocks were feeling the effects of the economic slowdown, Ameron International’s shares gained an impressive 50% since the start of the year.

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Ameron shares (AMN), weekly closes and latest on NYSE

Friday: $57.51, up $1.45

Source: Bloomberg News