Coping With The COVID -19 Crisis With Brad Beauchamp
I‘m talking with Brad Beauchamp, President and CEO of Carpenter Company, which is a privately held diversified manufacturer of polyurethane foams, chemicals and insulation materials. Brad, welcome to the show.
Thanks for having me. I look forward to our conversation.
Let’s start out where people are interested, which is how was 2020 for you and your company. We faced a pandemic. The entire 2020 was interesting from the dynamics of what was going on in the world and in markets. How did that play out for you?
We use the word crazy a lot in a lot of different ways but it’s probably very apropos for 2020. It was a crazy year. We started out the year in the first quarter in January and February, before the pandemic and those were strong quarters. We thought, “2020 is going to be a good year. Here we go,” and then the pandemic hit. It was interesting. At one point, we saw our sales decline. We track it by dollars sold per week. We saw our sales decline at the lowest point in the first week of April down 75% in North America. It was a very scary feeling.
It probably is scarier if you’re maybe a public company or if you’re carrying a lot of debt but being a private company and being without debt, it was still scary. We were still, “What does this look like? What does it mean?” From that low point, things gradually started improving week by week. When I say improving, people say, “That was up a couple of percents.” We started seeing sales return growing 5%, 10% or 15% in a week. To the point where in June, we were back running even with 2019. It was very much a quick down and then a quick backup. That provided a lot of encouragement but there were a lot of challenges with that.
Anybody who’s reading this and is in the chemical business or any kind of business would know that period of time from March through early June was a crazy time. There was a lot of stuff going on. I was thankful. I thought our folks did a fantastic job of managing our way through that. Looking back on it that helped us were two things. One was that while we did ask people to work remotely, we gave them the option to come into the office if they wanted to come in the office. We weren’t, “Go home, stay home.” We were, “Come in, we can make it safe for you,” and all the executives decided that they would come in on a daily basis.
While we have multiple manufacturing sites, multiple states in Canada and Europe and these issues or problems would come up state by state, day by day. It was so much easier to have a quick five-minute discussion, maybe with the HR person, VP of manufacturing, say, “What do we want to do here?” and do it. I talked to friends in chemicals and outside of chemicals who spent lots of time in Zoom meetings or waiting for the next meeting and felt like they were slogging through a lot of stuff. I felt like our decisions were rapid. They were quick, very burst meetings, move on and make the decision. What we did is as a goal, we said, “If our decision is we can say this is best for our customer and this is best for our employees then that’s the decision. That’s how we’re going to make the decision.” If we can answer that’s good for both of those two constituents then it’s a good decision and we’ll let the chips fall where they may.
That’s an excellent approach. Many companies are still with people sitting at home and you lose that interpersonal connection. It’s slower to make decisions. The ability to keep the decision-making fast and to keep your customers and your employees central to that is critical.
You have to know what you want to do, then do it!
We got into the summer. The summer was going well. Right around August, September, we had more demand than we could get chemicals. We pretty much from September through now, we’ve been on allocation on a variety of the chemicals that we need. There are not enough of them. I could sell 15% more polyurethane foam each day than I’m able to make from the chemicals that I can get. When I say crazy, you went from good business to horrible business back to good to sold out. It’s a roller coaster.
Especially with supply chain constraints, is that because demands up overall or has it been operating issues on your supplier parts or COVID shutdown related? What do you see?
I would attribute it to two things. Thankfully one of those two things isn’t an active hurricane season in the gulf. As a chemical industry, we got out of that one but two things that I saw when the shock came in March, we saw a lot of our suppliers trying to debate what to do. A good example is one supplier who had a two-reactor train said, “We’re going to keep the smaller one running and we’re going to shut the bigger one down. We’re going to run at this rate.” Another supplier said, “We’re going to fill our tanks up and then shut it down.”
Having been in the chemical industry for long here, once you decide to shut something down, it’s a process. Once you started back up, it’s a process. With us having a V-shaped recovery, those chemical companies were behind the curve. Opening those things back up in mid to late-July, getting them running in August are some particularly continuous processes. You want to run continuously. When you start them back up, there are always little hiccups and burps that happen. They had that. They didn’t have other regions. The same kinds of things were happening in Asia on a little bit earlier timeframe and the same things were happening in Europe. There weren’t other regions that could send a barge over here to bail us out. That’s what I would say. The demand was much bigger than expected. If you had asked anybody, they would say, “I wish we had restarted those reactors 6 or 4 weeks earlier than we did.”
Hindsight is 20/20 and 2020 wasn’t so good. That’s crazy. What do you see for 2021? What’s the prediction? I see all kinds of predictions of growth and recovery. It hinges on a lot of assumptions but what are you seeing from where you sit?
It’s always been hard to have a crystal ball and say what is 1 or 2 years or 18 months look like. You feel pretty good that you can get a focus on what is the next quarter going to look like, 90 days or something like that. We’re still in the midst of tight chemical supply and super escalating costs. Propylene settled up $0.12. That makes it two months in a row of double-digit increases, which I had never seen. That’s having a big impact. In a difficult time, if the demand wasn’t so good, in our businesses, we’d have a hard time pushing those kinds of increases through the system, but because everything’s so short, it allows you to say, “This happened to me. As a result, I have to do this.”
We supply polyurethane or alkoxylate materials, one to ourselves and then we turn those into polyurethane foam and make furniture and bedding. We supply the polyols and other alkoxylates out to people doing case industry-type products and doing in the food grade. For us on the internal side, on the foam side, we’ve got customers specifically in furniture and bedding who say that they’re at 20 to 25-week backorders. If you’ve walked down to the Galleria and you said, “I want to buy a sofa.” It’s likely someone’s going to tell you, “I can get you that sofa in somewhere between 12 and 20 weeks,” which is crazy to think about it. A normal good business backorder in that industry might be 6 to 8 weeks. There are lots of times where you can almost get it the next week fabricated. People are having a hard time. “What do you mean I’ve got to wait 8 or 10 or 20 weeks for a sofa?” When you ask about the demand, I can see that window well for now, right up until about May right until the summer, but then is that demand going to stay? If we’ve worked the backlog down, is there a sustainable demand after that pushes us through the rest of the year in a good way?
I know with everybody home, home improvement projects, makeovers have been in favor. People are waiting for those sofas because they’re sick of sitting on the old one, and they’re spending a lot more time on it than they used to be.
It’s funny that you say that. When COVID hit in March, one of our businesses is carpet underlay for residential. The carpet pad, we contacted them and we said, “How’s it going?” They said, “Carpet pad is okay.” They are a large paint manufacturer. They said, “We’re selling the hell out of paint.” They were sold out in March. All of a sudden, the pad and other things come along. I said, “Once you painted your walls, your sofa looks pretty old.” You got a fresh wall. You want some fresh furniture to go into that room. I attributed a lot to that.
We’ve had a few home makeover projects, do-it-yourself projects at home that involves paint and furniture and all kinds of good stuff.
People have quickly diverted their spending habits where you and I or somebody else might’ve said, “We’re going to go on a vacation and we’re going to get on an airplane. We’re going to fly.” Now you don’t do that. Now you say, “I’m doing a staycation. I’m going to update and spend in the house.” We also see a lot in the RV industry. They were sold out. Some of our customers had an interesting tale of people who would have come in at the beginning of summer or early and bought a small size RV for a trip that they were going to take on Labor Day. It comes getting close to Labor Day and their RV is not ready. The person’s like, “I need to go on my trip.” They were letting people pick up RVs that didn’t have microwaves or refrigerators in them because those were the things that were back-ordered and said, “You can go with the RV. I’ll get it to you but then you got to come back in and let me install those when I tell you it’s arrived.” That’s how crazy it is now.
Travel is a good point. You guys have been in the office, you and your executive team and some of your other employees. You’ve got customers and manufacturing sites all over. Are you guys traveling? Do people want to see you in person other than your employees? Do you see the return of business travel? What are you seeing out there with your business and your customers?
There’s been a big downshift. We have a large different number of sales teams and what we told them was, “It’s okay to park your company car,” or in some cases, we’ll reimburse them for their lease car. We went through that and we said, “We’re going to pay you to idle that car. We’ll pick up your lease payment.” We said, “Get on Zoom like we are here. Make connections, try and stay connected.” In certain segments, carpet is a good example. It’s a lot of mom-and-pop flooring stores. Initially, they were hesitant but then they were like, “If you want to come in, come on in.”
You get to the bigger companies that we deal with and they’re like, “No one’s even in our office until September of 2021.” For me, it’s like, “What are you doing? How do you even run that?” It’s hard for me to fathom having that. For us, we feel like one of the big things that makes us what we are is our culture. There’s a feeling that if you have that diaspora going on, how do you maintain culture through all of that with people working remotely? For us, this was the decision that works. We could distance our people.
Even in our manufacturing, when I look back on it, for years, we had been focused on our processes taking bulk work out of the process. Why should somebody use glue labor, pick up a piece of foam and move it here? We want them to use their minds and their intelligence and other things, not just their muscles.
When I look back on it, I’m not like producing a bedding line. For a full line, we might have eight people on that line. It was easy to distance. I know some of our competitors tend to throw more people at that problem. Before COVID, it’s difficult to put in an automated gluing line. It’s easier to have somebody with a roller gluing it on and two people putting the sheets together. I heard from our customers that other competitors were having a harder time getting their plants configured for the distancing. We didn’t have that, which is serendipity. We were more lucky than good. I’ll take it every day.
After you make good decisions, let the chips fall where they may.
Being a couple of steps ahead on automation is helpful when you start running into these other business risks that involve people and pandemics.
As a side note, an even thing that we had to do is to think creatively a little bit. We are visiting customers. We are visiting plants. We have onsite engineering and then we have centralized engineering. Sometimes central engineering is needed. We let them go when they needed to go. It that case where you had situations like, “We’re here but we can’t go into Canada so what do we do?” We considered Zoom and other things. We ended up procuring glasses for people that have cameras built into them. When somebody comes and says, “I’ve got a problem,” we send them the glasses. We made sure we beefed up the Wi-Fi all around the plant. Now an engineer can sit at his desk and watch and see what’s going on what the maintenance guy is seeing rather than on the phone or him shooting a video and sending it to you. It allows them to do it hands-free. We’re making more and more use of that. I don’t think it replaces the visit and rolling your sleeves up. It’s a good temporary fix or it’s a good assist in what we’re doing.
I’ve seen reports that say, over 2020, digitization of business processes has leapfrogged, 2 to 3 years of growth over the course of two months. It sounds like you’ve seen that as well in different ways and shapes in terms of getting your digital processes out to the team.
Once you say, “Is this an idea? Is that feasible?” You go, “Somebody has to research what are the right ones?” We had to go through the step of we have Wi-Fi in the plant but do we have enough bandwidth? You don’t want a clunky system that doesn’t work. There were other things. It wasn’t like, “Let’s throw on a pair of glasses and we’re good.” I wish it was that easy. There are some good people who put in some good work on stuff like that.
How do you look at sustainability? One of the hot topics that is a growing focus is sustainability and the circular economy cutting across the chemical industry. When we think about sustainability, we often think plastics because plastics are very obvious, but a lot of your products, like polyurethanes, are physical products that people are using and touching. How are you guys thinking about sustainability, circularity for both you and your customers?
At least at my level and near my level, we think a lot about it a lot more than people realize because it’s not an easy answer. If it was easy, we’d all be doing it. I mentioned our carpet pad material but in 2020, we consumed over 350 million pounds of used up urethane to make carpet pads. If you looked across all the industries, one of the unsung heroes in circularity and in recycling, that foam that gets trimmed off when you’re squaring up a mattress goes back into making carpet pad. Even the carpet pad that gets pulled out of your house gets reused into making more carpet pads. There’s a certain turn with that you don’t see in the other plastics now.
The downside with that is we’re still not recycling enough. I’ve put a plug in to say everybody should put carpet in every room of their house so we use more pads, but the trend has been away from that. It used to be that you had wall-to-wall shag carpet in the ‘70s and everywhere. Now, there’s carpet in the bedrooms and maybe in the upstairs hallway or in a den. That’s it. Confronting that, we looked and said, “Demand for taking stuff back or reusing it is increasing. One of the prime outlets is flat-lining or declining. We need to make sure that we can go to our customers in 1 or 2 or 3 years and say, “We have a solution for that.” We have a very active project with it.
I was thinking about how much it’s changed over the last several years in chemicals. Several years ago, the sustainability question was all about renewable feedstock. Give me a bio feedstock into the process. Now people don’t even ask us about that. They want to know what happens on the backend. It’s been a shift. We’re still looking at the bio feedstock side because we think that’s still a good thing to do. It doesn’t resonate with people now as much as it is. Once my sofa was used up or my furniture used up or my coating or whatever it is, how do I get that back and not throw it into the landfill? It shifts from a front-end project to a backend project. That’s the way I look at it.
It sounds like you’re able to do a lot of it inside your own internal ecosystem as well, which is helpful.
It’s not an easy process if you think about it. That’s what makes it a challenge. Even if I had a good chemical process for taking foam and turning it back into chemical, I’ve still got to get the foam. I got to get the mattress from your house to me. At Carpenter, I’m most interested in the foam inside of it. I’m not interested in the cover of the fabric or the remaining springs that are in it. I got to answer, “What do we do with all that stuff,” or somebody has got to help me with what we do with all that stuff. I know what I want. That’s not just a single piece of plastic. It’s multi-faceted. You got to say, “What do you do with all that?”
On a consumer basis, most consumers don’t think that their mattresses are recyclable. It’s put out to the trash and let the trash guys take care of it and not knowing. The consumer infrastructure and knowledge also have to be there.
There was some legislation that went into effect in California. California has had a recycle mattress program for a long time. You have to be aware of it. As a consumer, you have to know it exists. In California, as much as we want to knock on them, they had done some good things in terms of making that known in furniture stores or things that this is available. They switched in 2020 and they said, “Starting in 2021, if you sell a mattress, you have to be willing to take a mattress.” Rather than being a voluntary program and where it’s thrown some people for a loop. In two regards, one is the online retailer. If I’m selling a bed, I used to sell a bed, I didn’t have to figure out with UPS or anybody else how to get a bed back. They’re trying to figure it out. The big-box retailers too, they’re like, “I sold a thousand beds this week. I don’t want to take a thousand of them back.” California has caused a lot of people to put the brakes on a little bit in the short-term. You’re trying to figure that out because they threw it at everybody and said, “We’re making this change. You go figure it out.”
A couple of my kids have gotten new mattresses and they come rolled up in a box. Once they’re out of the box and they’ve expanded, you can’t get them back in the box very easy to send them anywhere.
You would look at the trends like that. We talked about sustainability. Another piece of that sustainability is the amount of plastic and cardboard used in that box. We spend a lot of time re-engineering our foam so that we can reduce that packaging footprint. Right before Christmas, I went up to one of our equipment vendors, some of the guys in manufacturing. We looked at some of those things. Our view is how do you keep reducing that packaging footprint more and more? It’s not just the mattress itself. We’ve got to look at the other parts of it as well.
You’ve been president of Carpenter now for a few years, CEO since 2020, taken over from Mr. Pauley who left quite a legacy in the business. What do you think about this? What are you looking ahead in terms of how are you reshaping the company because now it’s on you? What’s your legacy when you look at Carpenter Company, where it is and where it’s going and the impact that you are going to be able to make?
You’ve got to be asking the scary question right now. There’s no doubt when you have somebody like Mr. Pauley who had been engaged in the business for 60-plus years. You don’t see that. I joked when I had to present him with a 65-year Employee Anniversary Award. I thought it was very odd because not only does he own the company, whatever is in the little booklet is not going to matter. How do you call the award company and say, “I need 65?” They were like, “We can send you two 30s.” He had such a big impact on the company’s culture. First and foremost in my mind is how do we keep replicating that? How do we make sure that those intrinsic values stay, but how do we improve some other processes and things that reflect a more modern organization?
Go and make the change!
That’s where I’ve spent a lot of my time is trying to think about how you do those and do them well. How do we grow the company in the right way? It would be easy in our position to say, “Let’s go out and we’ll double the business by making a couple of big acquisitions.” Somebody can do that but I don’t think we’d end up with the same company in that regard. What we want to do is say, “How do we grow the business effectively but maintain and replicate the culture side of it?” That’s the real challenge out there in the market. Valuations are challenging. Sometimes somebody wants something more than you want it. They pay more than you want. You look at it and how do you grow effectively so that you look back in a couple of years and you say, “We’ve added 10% or 15% to the workforce but they all act as we all act as a company.”
That’s the hard part especially when you guys have such a strong culture, a family culture and an entrepreneurial culture to continue to grow and develop that.
I would say on the 100th anniversary of your show, check back with me and we’ll see how I’m doing.
You’ll become a regular. I will check in regularly to say, “Brad, how’s this going for you?”
You can say, “How are you holding to your values?” When you cut to the quick, that’s the question. “Are you keeping the values?”
What do you see as the key values of Carpenter?
The ethos has been around a place that people want to work in. There are a lot of people, regardless of their job, that comes in and says, “This is a good company that cares about me, that I want to do my best work for.” There’s a good focus on being efficient and investing in a location. We were talking about it earlier. It was a while back, one of our customers was disorganized. For us, that’s uncomfortable. We like organization. We like efficiency. We’re always looking for how do you make that mattress more efficient. How do you use the brain muscle of your people and not the brute muscle of your people to generate more and do better?
The culture is to say, “We’re family-owned. We’re private. We’re going to do certain things in certain ways as it relates to cash and debt.” When it comes down to if you pulled up somebody out of one of our plants and you said, “What makes the workplace different?” I’d hope they’d say, “They’re investing in the people and I feel like it’s a good place to work.” We’ve got a lot of good tenured people in that process. When COVID was hitting, we went back and said, “What are the right decisions to make?” At the time Mr. Pauley and I had a discussion about it. There was a lot of stuff in the Wall Street Journal about furloughs and guys voluntarily taking salary reductions.
I was like, “Where’s his mind at on this?” This is the first time we’ve been through it. I don’t know what he’s thinking. I go in. I’ve got numbers in my pocket in case I need to pull them out of the impact of what you do. He looks at me and he said, “The reason we have a strong balance sheet is so that we can get through times like this without affecting our people because they come to work for us because they want to make a career out of it.” I was like, “Amen, I didn’t have to stress out about that.” I didn’t feel like someone was going to put a hammer down on me two weeks later and say, “What’s your plan for trimming expenses by 35%.”
It’s the benefit of building your business strong and building your balance sheet so that you can ride it out.
Cubs baseball, what’s going to happen in 2021. Is anybody going to go watch a baseball game?
I would guess that maybe Major League Baseball is talking somewhere after the 4th of July or maybe half the 4th of July, they would give back to something like a 50% capacity and kick off the second half of the season that way. I’ve been a Cubs fan my whole life. It was fantastic to win the World Series and they invested to make that happen. It was interesting if you read Theo Epstein, who’s the general manager who pulled it off. Some of the calculations they were doing would surprise you. The Cubs had the best team when they won the World Series. When he’s talking about their internal metrics, he said that their best-case scenario thought that even then they still only had about a 28% chance of winning the World Series. If they traded for Aroldis Chapman, that percentage went up to about 38% or 40%.
You looked from the outside and say, “They’re the best team in baseball. Why wouldn’t they win?” Particularly in baseball, so many times the best teams don’t win. All they can do is try to maximize their chances of success and hope that it works out. They just had to hope that some of those hitters would continue on an upward trajectory and they hadn’t. Now they’re stuck with what most teams do having to face the cards, “Do we got to retool or is it a full rebuild. Is it some rust on the quarter panels, I’ll just sand it off and we’re good to go, or do I got to get in the engine and fix it?”
We’ll see how it plays out in 2021. Brad, this has been good. I appreciate you taking the time. I appreciate you sharing with me your insights in the industry and about Carpenter and where it’s going. Thanks.
It was a lot of fun. I’m happy to come back and do it some other time. I looked forward to some of your other guests. I want to see who else you’re talking to and see their thoughts around these topics. It would be fantastic. You’re doing a great thing for chemicals in general. I don’t know that I see much of that out there. You’re in a good space.
About Brad Beauchamp
Bradford Beauchamp is the President and Chief Executive Officer of Carpenter Company, a privately-held, diversified manufacturer of polyurethane foams, chemicals and insulation materials, based in Richmond, Virginia. Carpenter markets its products globally into comfort cushioning materials, CASE, and insulation. Carpenter has over 42 manufacturing locations and over 4,700 employees.
Brad joined Carpenter in the fall of 2008 as National Sales Manager, Chemicals. He then moved on to become General Manager and then Vice President of Chemicals. In 2018, Brad was named President & Chief Operating Officer. In 2020, he became President & Chief Executive Officer of Carpenter Company. Prior to joining Carpenter, worked for Stepan Company for 18+ years.
Brad received a received a Bachelor of Science from Bethel University and a MBA from Southern Methodist University.