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Home / Industry / Manufacturing / CEO sees acquisitions, overseas expansion

CEO sees acquisitions, overseas expansion

While the manufacturing landscape has changed dramatically over the past century and a half, one constant—locally, as well as nationally—has been Gleason Corp.

The Rochester-based manufacturer was founded in 1865. Over the years, it has not only survived, it has thrived, said John Perrotti, president and CEO.

Gleason develops, manufactures and sells gear-production machinery and related equipment. Its products are used by customers in motor vehicle, aircraft, agriculture, mining, windpower, construction, power tool and marine industries, as well as various industrial equipment markets.

Gleason employs some 2,550 people worldwide and has manufacturing in the United States, Germany, Switzerland, India, China and Japan, and sales and service offices throughout North and South America, Europe and the Asia-Pacific region.

The company logs annual sales of $600 million to $700 million.

Gleason is a true global operation, Perrotti said, as 80 percent of its sales come from outside the United States. Gleason sells to some 50 countries around the world.

“We’re about as international a company as you can find for a company of our size,” Perrotti said. “We have a vast global footprint, and that’s been really something that’s defined us and has been integral to our success.”

Perrotti has been president and CEO since 2005; he has been with the company since 1986.

He recently sat down with the Rochester Business Journal to talk about Gleason’s roots, its anniversary and plans to continue to grow.

An edited transcript follows.

Innovation here
ROCHESTER BUSINESS JOURNAL: Let’s talk about current local operations. How are things going at Gleason’s University Avenue location? What types of projects are being done there now?

JOHN PERROTTI: The Rochester facility, which is obviously where our corporate headquarters is and it’s our largest manufacturing facility, is where we do all of our bevel gear products, bevel gear machinery. So, among some of the new things we are working on, we introduced a new bevel gear grinding machine, which has been well-received in the market. We have received quite a few orders—including a very large order just recently from an automotive customer.

And that machine won our annual inno-vation award. Gleason has 14 manufacturing sites and they compete each year for this award, and this year it was our Rochester operation that won. The (bevel gear grinding) machine is designed and manufactured by the team here in Rochester.

RBJ: What do they win?

PERROTTI:
There’s a plaque that they get, and we have an annual innovation award trophy it’s sort of like the Stanley Cup in hockey—so the trophy travels and stays in the facility for the year. The names of people involved in the project go on it, and it stays in that facility until the next award recipient is named. Then it gets passed on.

RBJ: How many people work in Rochester now?

PERROTTI: About 700, and it’s been relatively constant the last few years. Now that’s Gleason people, but under our roof we have a number of suppliers here and we almost consider them other Gleason people. And we have some new tenants. Distech (Systems Inc.), the company we acquired last May was on Mt. Read Boulevard. It has about 35 employees and they are currently in the process of moving here.

Takes a village
RBJ: Talk about how the geographic footprint at the University Avenue facility has changed. It now includes what you call a supplier village. How did that concept come about and how is it working?

PERROTTI: That decision goes back probably about 10 years ago. At that time, Gleason was highly vertically integrated; Gleason in Rochester, was vertically integrated. And that really goes back to our roots. I always tell people when you’re 150 years old you sort of figured out how to do everything yourself.

There wasn’t a well-developed supply chain back then. And we sort of stayed that way for most of our existence as a company. But it became clear, as technology was evolving, that we needed to focus more crisply on gear technology, gear production solutions, our product technology, and we couldn’t be too distracted with having to also become experts in every facet of manufacturing every part that goes into our products.

It was really the development of a supply chain that we could access, as well as our need to focus on our own technology, that led to the decision to strategically outsource certain things that had historically been done internally.

But we wanted to do it in a way where we didn’t lose total control and where the supplier had close proximity to us. Today, right in our facility here, we have three major suppliers to Gleason: Zeller (Corp.), Advantage (Machine LLC) and Triline (Automation Corp) … they don’t just serve Gleason, this is where they built their whole enterprise. Gleason is their largest, or one of their largest customers, but Gleason is not their only customer.

And so obviously while we live in today’s virtual world and you can communicate electronically in almost any means imaginable, there’s still something to be said for good face-to-face contact. The business we’re in is complex, and the products and technology are complex, and as evolved as communication technology has come over the years, discussing complex issues and problem solving are sometimes better done face to face.

So we had the space. Some people who are Gleason employees transferred from Gleason to these other companies, so we think of them as still part of the Gleason family.

Auto industry key
RBJ: What industry trends are affecting the work done at Gleason in Rochester?

PERROTTI: Automotive remains the largest consumer, or user, of gears. So the automotive sector is still the largest sector for gear equipment. And the automotive sector globally, including North America, has been of the strongest industry sectors for the past couple of years.

Some of the other industry sectors like energy, including wind power, even farming construction, have been weaker. But automotive has been reasonably strong, particularly in North America. In North America, it’s really just getting back to the production levels that were pre-recession. Today, there’s investment, but also still a lot of capacity available, so we’ll see what happens with annual automotive production, whether it continues to grow or whether it will flatten out or not.

And China has slowed from the rapid growth we’ve seen, say in the 2004 to 2013 time frame. That nine- or 10-year period, China had very significant growth. China is still growing, but the growth rate has slowed considerably. But automotive is still growing about 5 percent a year, and I am referring to automotive consumption. There are some capital projects for new equipment in China, but it’s not at the rate it was. All industry sectors, some of those, like energy, wind power, even truck, have slowed even more considerably.

I think the other industry sector that is fairly healthy is aerospace globally. Aerospace uses gears, but they’re not producing as many airplanes as they are cars. The aerospace producers are not mass producers, so while they have equipment needs, they’re not at the magnitude of what you see in automotive.

Global growth
RBJ:
Where is the growth coming from with Gleason’s global operations? Where are you increasing your physical presence outside of the United States?

PERROTTI: Globally it remains a very mixed picture, as it has really been the past few years. As I’ve mentioned, China is growing, but at a much slower rate and particularly the capital equipment purchases have slowed even more. I would say Japan, which is another important market for Gleason, is steady and perhaps the weaker yen will stimulate more growth there, but a lot of the investment by Japanese companies is happening outside of Japan, in places like Southeast Asia and abroad.

Europe, on balance, remains weak, although with some of the monetary stimulus the European Central Bank is trying to implement, perhaps in a year or two we may see renewed growth there. Gleason has been negatively impacted by some of the sanctions and weaker ruble in some of the Russian and (Commonwealth of Independent States) countries, like Ukraine and so forth. Those are markets that have hurt us. South America has been very, very slow.

And India is just staring to recover. India has a new prime minister, (Narendra) Modi. Over the past five years, India’s industrial economy has actually performed quite poorly, but there is sort of some renewed growth under Prime Minister Modi and a level of optimism has returned.

So we have had a small factory already in Bangalore, India, but it wasn’t large enough to really satisfy our long-term plans which is why, in March, we broke ground on what will be a new factory opening up in the second half of next year. We believe that will give us enough space to execute some of our longer term strategies in India.

It is about a 50,000-square-foot factory, but with the opportunity to expand another 20,000 or 25,000 square feet after that. There, they will manufacture machines and cutting tools, which we are already doing in Bangalore, but we will just be doing it at the broader scale.

Today, India has something like 1.2 billion people, and it is believed that in the not too distant future it will surpass China in terms of the most populous nation. So we believe there’s good long-term prospects there, which is why we’re investing today.

Public again?

RBJ:
Gleason was a publicly traded company from 1968 to 2000. Do you think the company would ever go public again?

PERROTTI: No, I would say that’s highly doubtful. The company went public largely because there were some changes in the tax law and the family foundation, which was a major shareholder, had to divest of certain shares and they thought a public offering of the stock was the most efficient way to do that.

In 2000, we took the company private and the reason we did that was because Gleason wasn’t really, the industry we’re in, there aren’t so many public companies. Machine tools are cyclical; they’re not really well-suited for this quarterly earnings mentality of one cent earnings per share, or up or down. Whether one of our machines ships on March 31 or April 1 could have an impact of 3 or 4 cents per share.

We don’t have the same profile as a lot of industrial companies where the revenue streams are more even and predictable. Our business is lumpier; it’s not the type of thing that the investment community either understands or likes.

We were trading at a multiple then that was lower than we deserved at the time. It was hard to get analysts to cover us because in today’s world, we’d be considered not just a small cap, but more of a micro-cap stock, so getting analyst coverage was always a challenge. And more than getting the coverage was getting people who sort of understood the story and the industry.

So there are really no regrets at all about the decision to go private, because the regulatory environment for public companies has grown even more challenging (laughs). I could use other words but … quite burdensome and costly. We still have certain governance practic-

es and management principles that are aligned with what pubic companies do, but without some of the additional costs and constant concern about how data or information could be misinterpreted.

Turning 150
RBJ:
You will celebrate your 30th anniversary at Gleason next year. As a long-term employee, what does the 150th anniversary of the company mean to you?

PERROTTI:
It’s an achievement that very few global manufacturers can cite, particularly in what you would call advanced manufacturing technologies. And it’s even rarer, especially in the United States, where some of the advanced manufacturing technology base has really shrunk. I’m personally proud to be part of the company … that has not only survived 150 years, but also is still the global leader in its field of advanced manufacturing technology.

If you really understand the intensity of global competition, as technology advances what it does is it lowers barriers to entry. And so in some respects it raises the level of competition, which in the long run is good, although in the short term it can make life challenging. And the company has been able to endure; it’s a commentary about the Gleason people. The perseverance, the persistence, the ability to continuously innovate, the vision to seek international markets and to blaze trails in international markets very early in the company’s existence—and we continue to do that today.

It’s not lost on me, the stories of Kate

Gleason getting on a boat in the 1880s. It’s not quite of the same magnitude, but that’s still a little bit of what we’re doing today is we’re going around the world. It’s a little bit easier today, but it’s still part of what we’re trying to do in terms of entering new markets, and not just geographic markets, but even expanding our product portfolio, still, for the most part, focused on gearing.

We’re trying to build on the lessons and successes of the past and adapt (them) to a more modern and challenging landscape.

RBJ: Who are your role models from Gleason?

PERROTTI: Certainly Jim Gleason, who’s still our chairman. I’ve worked with Jim closely for most of my 29 years, even when I was young. I joined Gleason when I was 25, and really it was very shortly after that that Jim and I developed a good relationship. At that point in my career, I was a more junior person. I was able to observe him in meetings and observe how he analyzed and evaluated situations and problems and (saw) that he was a good listener. Jim was not the type of person to try to talk over people. He didn’t say that many words, but when he said them, they were usually on target.

I would have to say that Jim has been my primary mentor, but you learn and gather things every day still. It doesn’t have to be a person at the top of the organization; sometimes it’s colleagues you work side by side with. Wisdom and learning can come from all aspects of life.

RBJ: Where are Gleason’s growth areas?

PERROTTI: We’ve done a few acquisitions in recent years: K2 Plastics (Inc.) in September 2011 and then we bought a cutting tool company in Germany, now Gleason Cutting Tools GmbH, and that was done in December 2013, and then we acquired Distech last year, May 2014.

Selectively, we’re looking at acquisitions. Our primary focus remains gearing; 98 percent of what we do is gearing. Our mission is to be the total gear solutions provider, but we’re also open-minded relative to other opportunities where the technologies and competencies are common with our experience with gearing.

We would continue to look to broaden our product offering and, of course, while we’re most places around the world, we’ll continue to look at broadening our geographic footprint. Today, for example, we don’t have manufacturing in South America. But even in markets we’re in, sometimes there’s always the possibility to strengthen our presence. Our goal is to try to have common strength, leading market share, in all of the markets we serve. Sometimes your geographic presence there, whether it be manufacturing or just your sales and service organization, is an important variable in terms of your success in that market.

So we’re constantly challenging that. That doesn’t necessarily mean always adding people. Sometimes it means the ratio you have of people in different places as the world market shifts. That’s why we’ve been growing a lot in Asia and, over time, we expect probably the number of employees Gleason has in Asia will be rising faster than what it is in the Americas or Europe because that’s where our largest region is today.

Typically, more than 40 percent of our sales are into Asia, and that’s where we need to work to continue to be closest to our customers.

RBJ: What do you think are the reasons Gleason has been able to succeed, given the decline of manufacturing locally and domestically? What are the reasons Gleason remains and continues to grow?

PERROTTI: There are obviously multiple reasons. First, you have to start with the people. You know a company’s nothing more than its collection of people, so first you have to recognize the thousands—really the tens of thousands—of Gleason employees over many years.

And our past leadership helped guide them. (The ones) who instilled the culture based upon building technically advanced products and doing it with very high quality. It starts with probably the most important thing, which is the culture inside of the company.

You have to give credit to William Gleason, who was the founder of the company. And as William Gleason developed some of the first bevel gear manufacturing machinery, he also carved out a market that has endured and, in some ways, is still even growing today, with things like all-wheel-drive vehicles, and where there’s been few competitors. Where the technology was advanced enough and the company was able to establish itself in a dominant enough way (for bevel gear technology) that today there’s really only in that particular field, there’s really only one major global competitor we have.

That helped create a solid foundation for the company, which the company’s been able to protect and build upon, and continue to make the technology relevant. When I think of Gleason employees, including the Gleason employees in Rochester, the first word I think about would be adaptable, because they’ve seen change.

The company’s had ups and downs over the years; it’s hard not to when you’re around 150 years, and particularly in manufacturing. Many manufacturing companies have had to remake themselves, but the interesting thing about Gleason is we’re still doing the same products we were doing almost 150 years ago.

A lot of companies might be around for 100 years, or even 150 years, but what they’re doing today … the company might have the same name, but what they’re doing is totally different. And that’s good, too, that they were totally able to reinvent themselves, but it may even be more of a trick to be a market leader doing what you were doing 150 years ago, but obviously translating it to a much more modern time.

And so those are some of the things that I’m proud of. Those are the things we want to continue to build on. Our message, as we celebrate 150 years, is not only to look at the lessons of the past and to celebrate the past and be proud of the past, but also it’s about the future and how we make the next 150 years bigger, better, brighter than the last 150 years and how we do that in an even more dynamic landscape relative to our markets and technology.

6/12/15 (c) 2015 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email rbj@rbj.net.

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