Ronan company turns to new president in effort to reverse its fortunes
The Jore Corp. once seemed like a can't-miss business.
The Ronan company had a great product, power-tool accessories and hand tools that major distributors were lapping up. Jore had the very best customers. It made tools for Stanley, Black & Decker and Makita, sold them at Home Depot, Sears and Lowe's. In 1996, three years after the Jore family created the company, it had sales of $9.6 million. In 1999, sales topped $53 million and the company went public.
Shares of Jore's initial public offering sold at $10 and eventually traded as high as $13.19 on the Nasdaq.
On Friday, Jore's stock closed at 27 cents, not dollars. Auditors recently highlighted concerns about the company's cash position. And Jore's most recent press release, a cryptic statement about Jore's late filing of its quarterly report with the Securities Exchange Commission, used the phrase "the company is unable to accurately reflect the impact of liquidity issues …"
"Obviously, that's not good," said Bill Dezellem, chief investment officer for Davidson Investment Advisors. "Clearly, they are on the ropes, and there is a question of whether they will be a going concern."
Enter Jerry McConnell, who has a history of turning around flailing, troubled companies.
McConnell recently took over as president of Jore Corp., replacing principal stockholder Matt Jore, who continues as the company's chief executive officer and chairman. Jore started the company in 1993 with his brother, Mike, and father, Merle.
"I've done a lot of work with troubled companies," McConnell said recently. "It's a natural for my background and experience."
McConnell and his wife moved to Montana in May 2000, anxious to live in the mountains after a career spent primarily in the Midwest. He bought a small company, Precision Sawmill Systems Inc., located between Superior and St. Regis and began settling into life in Montana.
Through a friend, McConnell found himself touring Jore's facility in early March and trying to help the company find some investment capital.
"On the way out, I sort of said I'd be glad to help out if I could, and it just kind of went from there," McConnell said.
McConnell, who spent 20 years with General Electric, now finds himself trying to right a company in crisis. But what went wrong at Jore?
It's certainly not that Jore didn't make and sell quality products.
"Normally the trouble is bad products, bad distribution scheme, bad customer base," McConnell said. "That's not the case here. This company had a good customer base, really good products and they've been really good at getting them into the marketplace."
With so much success, enthusiasm soared inside the company.
"Everything they touched seemed to turn positive," McConnell said. "It was grow, grow, grow."
As the company expanded, management looked for new markets, something more than just the handyman market. The logical target was the industrial market. The company spent millions automating its manufacturing process and developing new technology as it readied products for the industrial marketplace.
However, the industrial market was tough to break into. Customers had established suppliers and a sense of loyalty to them.
"There were barriers to entry into those markets, and they proved substantial," McConnell said.
The fact that a company can't break into a new market isn't necessarily a death knell. But Jore spent lots of cash gearing up for that market, plus producing inventory for its other customers such as Home Depot and Lowe's.
Producing more product means hiring more workers and creating more storage space. Jore did both, expanding its work force to more than 700 and leasing space in Missoula to store inventory.
"What happened is they made a guess about the business they would do, and they were wrong," Dezellem said. "It's a common problem."
Dezellem sees a twofold problem at Jore. One, the company simply had too much inventory. Jore produced about $52 million in 2000, but at the end of the year had $25 million in inventory sitting on the ground.
"You'd like to have about 90 days' worth of inventory," he said. "What happened here is that the expectation for sales exceeded the reality."
Two, the economy slowed through 2000, but particularly in the fourth quarter.
"That's the other aspect of guessing wrong, and that's that retail sales at the stores where they sell slowed," Dezellem said.
Slow sales in the fourth quarter is a particularly damaging phenomenon for a company like Jore because what it leads to is product sitting on the Home Depot shelf in the first quarter. And the first quarter is Jore's slowest quarter, primarily because it's not exactly handyman season.
"This business is terribly seasonal," McConnell said. "We do about three-quarters of our business in the last part of the year. In the first half of the year, cash is a challenge."
And cash is the problem.
"A company that hadn't overextended itself would have cash on hand to get them through the slow time," Dezellem said. "But they ate their cash up with equipment and inventory and over-employment."
For the fourth quarter of 2000, Jore reported a loss of $5.8 million, or 42 cents per share. Wall Street analysts had expected a profit of 4 cents per share. That loss, reported on March 1, rocked Jore's stock, knocking it down from nearly $4 to under $2. It sank to under $1 later in March before rebounding back to $2.
May has been worse on the stock, as the price dropped to 24 cents last week. Even so, the only analyst covering the stock maintains a hold recommendation on the shares.
McConnell is guardedly optimistic about Jore's future. He believes the company can meet its financial plan for the coming year, with modest growth over prior years' sales.
"We have a short-term liquidity problem right now, and that's what we have to deal with," he said.
Dezellem said that McConnell's track record with troubled companies bodes well for Jore, but noted that bankruptcy isn't out of the question, even after the company laid off about half its work force.
"I think that's a very real possibility," he said.
But Jore and McConnell could stage a recovery.
"What they need to do is sell a bunch of that inventory," Dezellem said. "And they need to turn inventory and receivables into cash. Number two, they need to get the banks to work with them to give them money to operate the business. If they can do those things, they can start trying to rebuild the company."
Reporter Michael Moore can be reached at 523-5252 or at email@example.com