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Raising the Bar
Manufacturing maven Kachur discusses a record-setting year at CUNO
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Business New Haven
1/8/2001
By: BNH
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On December 19, the Meriden-based CUNO Inc. (NASDAQ: CUNO) reported record sales and earning for its 2000 fiscal year ended October 31. Sales grew ten percent over the previous year, from $220.6 million to $243.1 million. CUNO's earning curve was even steeper - net income up 18 percent to $17.4 million from $14.8 million a year ago. CUNO Chairman and CEO Mark G. Kachur talks about the business prospect of his firm, which makes filtration products for the separation, clarification and purification of liquids and gases, as well as the state of manufacturing in Connecticut in the 21st century.
Congratulations on a record-setting quarter and year. In your press announcement you cited growth in your potable water business and improved international operations. Could you expand on that a little?
We certainly have been focusing on the water business for some time. There is no doubt an increased awareness of the problems of drinking-water safety - not only here [in the U.S.], but around the world. You can just imagine what the Third World countries are like. With the [U.S. Environmental Protection Agency] mandates now highlighting concerns about the safety of municipal water supplies, more and more people are concerned about water. Just witness bottled-water growth - look at the number of people who carry bottled water with them who didn't ten years ago. We've focused on this business for some time now.
Are there consumer applications for any CUNO products?
In the appliance business it became obvious that as appliance manufacturers attempted to differentiate their products, especially the more upscale side-by-side refrigerators, they found in a brutally competitive business that when they offered ice- and water-dispensing units in the front [of the refrigerator], that differentiated them. The next logical step then was to filter the water. We have for some time been working with those [appliance manufacturers] to create proprietary filters for them. What's unique about what we do, because we're actually more expensive than our competitors, our filters for, say, a Whirlpool, are proprietary and patented. Therefore, the consumer must buy the replacement cartridge from the appliance manufacturer or its distribution outlet. [The consumer] can't just go to Home Depot for a cheap knockoff. So it's the captive aftermarket that intrigues them [the appliance manufacturers]. So if there are a few million refrigerators of this size sold every year, and they change filters twice a year - all of a sudden you can see how the replacement business is as important to [the manufacturers'] profitability as is selling the big box, the appliance. Everything we sell into this business is either patented or proprietary - in most cases both - so we really have a captive aftermarket that's beneficial to the appliance manufacturer, and obviously beneficial for CUNO.
In general, does your growth in fiscal 2000 reflect more units sold, higher margins, or both?
Our operating margins are obviously improving, but we are selling more units, without a doubt.
What proportion of total sales are international sales for you today, and how long has CUNO had a strong international presence?
International [sales] this year will be about 46 percent [of total sales]. We've invested heavily in [international] over the last five or six years, and it's really starting to pay off.
Your Web site says the filtration products market worldwide is about a $3 billion annual market? What is your share of that market, approximately, and what do you think it ought to be within a foreseeable period of time?
Larger [laughs]. We position ourselves to be high value-added and of course high-margin. We provide a tremendous amount of benefit to the end user regardless of the application - filtration of beer, wine, paint for automotive finishes. We constantly look for value-added to the end user. As a result, of the many [individual companies] in these businesses, there are only two or three who do what we do. Most will compete on price, and price alone. We tend to be in the upper-end niche: It might take us two years to work with a customer to understand the application and provide the solution. But the payback to the customer is so beneficial that would never then consider switching to someone cheaper.
Does raising the performance bar to a significant extent, as you did this year, place additional pressure on you as CEO?
Of course. But this is what our shareholders expect. It does keep you up at night from time to time - but that's also what makes it fun.
Speaking as a leading manufacturer, how in general has the Internet affected how your company does what it does?
It hasn't changed it radically yet, but it may very well in the future as more and more people become Web-enabled, especially in selling and supply-chain management. We have multiple paths to market, and in our various businesses we've selected the best path that we can. So before we do something in these areas, it has to be well thought-out and an integral part of a long-term business plan.
You have about 1,400 employees in all - how many in Connecticut?
About 750.
And you still manufacture in Meriden?
Yes. In Connecticut, we manufacture in Meriden, Enfield and Stafford Springs.
Nearly every CEO we talk to says the same thing about the labor market. How hard is it for CUNO to find skilled labor in Connecticut?
It hasn't been easy the last year or two, but I suspect it will begin to get easier as our 'soft' landing turns hard. But we've been a very attractive company [to prospective workers], and often we're able to attract the employees we need by word of mouth. So we're probably well above average in employee attraction as well as employee retention.
For ten or 15 years the conventional wisdom has held that Connecticut is losing its manufacturing base. Part of the reason for that, I have a theory, is that a lot of Connecticut manufacturers don't necessarily have very high public profiles. Is having a high profile in your home state important to CUNO - or does the international nature of your business simply make that not a priority?
You've touched on a very good subject. Having a higher profile is beneficial because you can attract far more state support. Connecticut actually has excellent programs to help train the workforce. We've been engaged with the state and local agencies in Enfield, where we have put together a very strong training program for our employees. The best way to retain companies in the state is to have a well-educated workforce. And Connecticut has been superb in supporting [our training efforts], although I think not enough companies take advantage of it. Our training [ranges] from English as a second language to highly sophisticated computer skills, and the state has been very supportive of that in funding and making space available for training. More and more companies should take advantage of it; at the same time, companies need to be more visible so that the state can find them.
Are there other things state government ought to be doing to make life easier for the manufacturers or to attract other manufacturers from elsewhere?
Certainly there are cost-of-living and tax issues that, when you get into very competitive situations, make it sometimes difficult. Whether Connecticut will ever do anything about taxes remains to be seen, given the political split [between the executive and legislative branches]. If there's anything that's a deterrent to growth, the cost of living here and what it means in a competitive situation is very tough. We tend to be high-technology and high-end, so we can live with some of that. But overall, not all of our businesses can support the costs that we have.
With your business all over the world, you could be headquartered anywhere. Do you see CUNO always being headquartered in Meriden?
We have no plans to change. Connecticut is a great state to live in, and I think our employees are very satisfied here. That's a big part of it.
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