The secondary wood products industry is healthy, and manufacturers especially the mid-sized manufacturers are optimistic and gearing up for growth. That's the overall result of a major research study conducted this year by FDM. This spring FDM surveyed nearly 400 subscribers to determine current business practices and the health of the industry.

Responses indicate firms are optimistic about increasing revenue in the current year and increased growth over the next five years. Growth and optimism are stronger in the mid-range of the market. Respondents in the cabinet, architectural millwork and millwork segments also expressed more optimism about growth and expansion.

Offshore competition is estimated to have a marginal impact overall, but larger firms expect a stronger impact than smaller operations. However, 86 percent of the responding firms anticipate expanding their operations in the next five years.

Other key findings in the study include:

Employment

Collectively, those surveyed employ 6 percent more workers now than two years ago. The majority of those surveyed have kept the number of plant locations constant over the past two years.

Sales

Half expect 2006 revenues to exceed the previous year. Expectations for a stronger 2006 are higher among those in the upper revenue bracket of $10 million or more in 2005.

Outsourcing

Collectively, responding firms outsource 14 percent of the manufacturing process. One-third do not outsource at all and the largest segment, nearly 40 percent, outsources 10 percent or less. While 78 percent do not outsource overseas, that number jumps even higher among those with fewer than 50 employees and among firms reporting 2005 revenue less than $10 million.

Operating expenses

About one-third of survey respondents expect 2006 expenses will remain comparable with 2005, while 55 percent anticipate higher expenses in the current year. Firms expect raw materials to cost more than labor, and more than capital improvements and transportation combined. Nearly one in six allocated 50 percent or more of their 2006 expense budget to raw materials.

Nearly 60 percent increased prices in 2006 compared to 2005. One-third held prices steady and only 3 percent lowered prices in the current year. Collectively, prices among this group are up 5 percent in '06 over '05. Those who expect their '06 sales to increase over '05 are most likely to have boosted prices.

Although actual profit margins of 10 percent for 2005 were below the mean budget of 13 percent, 2006 profit margins are budgeted slightly higher than '05 budgets with a mean of 13.5 percent.

The future

Eighty-six percent are planning some actions to expand their operation over the next five years. Changes in production methods (65 percent) and upgrades and expansions to manufacturing equipment (55 percent) top the list.

Operations responding to the survey hold more optimism for growth prospects for their company over the next five years, with a mean rating of 4.2 on a six-point scale. Comparatively, mean expectations for the U.S. economy and this industry overall are 3.7 and 3.6 respectively.

Offshore competition is estimated to have a marginal impact on business, with a mean of 3.3 on a six-point scale. Firms with 50 or more employees or $10 million or more in sales see a stronger impact than smaller operations.