Energy, supply costs boosted some business' revenues

Some companies found that rising fuel and supply costs helped generate more revenue. Others found that the higher costs ate into their profits. A few companies were hit both ways.

The effects of rising costs were reflected by some of the businesses on the Business Journal's annual ranking of the midstate's top 100 privately held companies. We ranked them by 2005 revenue.

Higher revenue did not mean higher profit in the case of North Metal & Chemical Co. From the numbers on our list, it looks like North Metal did a bang-up business in 2005. Its revenue jumped from about $21 million in 2004 to nearly $35 million in 2005. It went from 106th to 83rd on the list. That's a big increase for a firm that employs seven people. But those numbers can be deceiving, said Fred Fay, president of North Metal in York.

Most of North Metal's products include molybdenum, a metal that protects against decay. Antifreeze, for example, contains molybdenum to keep the car's engine from corroding.

Molybdenum often is used to protect steel. So as the cost of steel rose due to higher demand in China, so did the cost of molybdenum. In 2000, the metal cost about $2.50 per pound. By last year, the price was up to $40 per pound, Fay said.

So his company's revenue increase reflected the higher price of molybdenum, which he passed along to his customers.

"Our profits barely rose," he said. This year, the price of the metal has settled back down to $25 per pound, Fay said. But that forces him to sell inventory at market rate, below what it cost him to purchase it. "We are fighting to make a profit this year," he said.

While high materials costs hurt North Metal, high energy prices helped Harman Stove Co. in 2005. The stove manufacturer has been inundated with orders from all over the world for wood-pellet stoves, an alternative to gas and oil for heating homes.

"Everybody was looking to reduce their energy costs," said Todd Kaufman, national sales manager for Harman Stove. Only 5 percent of the company's 64.11 percent revenue jump reflected a rise in materials costs, Kaufman said. The rest came from demand for alternative heat. Harman Stove did little extra marketing of its product in the past two years, but the business continues to grow, Kaufman said. He has had to turn down requests for business in New Zealand and the United Kingdom, sticking to the companys U.S. and Canadian markets. A new warehouse is under construction on the company's land in northern Dauphin County. Kaufman expects revenue to double this year. That would bring revenue from $56.55 million in 2005 to about $113 million in 2006.

Materials costs and a favorable market caused a revenue increase at Benchmark Construction Company Inc. in 2005, said Jeff Sturla, vice president of business development for the Lancaster County company.

"In the past couple of years, we've seen the cost of construction rising at double-digit rates. So as we've seen those things grow, that would take a certain portion of the growth (in our company)," Sturla said. A larger portion of the revenue increase could be attributed to demand for commercial structures and Benchmark's push to increase its market share, he said.

Benchmark's core market, commercial construction between Lancaster and Philadelphia, is especially active. Benchmark is seeing more health-care projects, while its senior-living projects are holding steady. The company is also exploring other types of construction, as the contractor for the Pennsylvania Academy of Music in Lancaster, Sturla said. So it has not suffered the hit from higher supply costs that other businesses have seen.

"The cost of construction has gone up, but so has the demand," he said. Sturla anticipates a revenue increase in 2006, but he said it's too early to tell if it will rival the increase Benchmark experienced in 2005. That year, the company brought in $47.97 million, nearly 58 percent more than its 2004 revenue.