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NACCO Industries, Inc. is a medium-sized, diversified holding company consisting of four major operating subsidiaries: the oldest, the North American Coal Corporation, is the tenth-largest producer of lignite (surface-mined) coal in the United States; Hyster-Yale Materials Handling, Inc., which designs and manufactures forklifts for domestic and foreign markets, is the largest forklift manufacturer in the nation; Hamilton Beach/Proctor-Silex, Inc., is one of the nation's leading producers of electric home appliances; and The Kitchen Collection is a highly successful nationwide retailer of home electric products and kitchenware. Because of its great diversity, NACCO Industries, according to Donaldson, Lufkin and Jenrette, is "one tough company to analyze." The subsidiaries appear to have nothing in common, and yet NACCO has emerged as a quirky American business success story.
NACCO's story is very much the story of its founder, Frank E. Taplin, who founded the North American Coal Corporation in 1925. A native of Cleveland, Ohio, which today is still the headquarters of NACCO Industries, Taplin was born in 1875 with obvious entrepreneurial talents. When he was only seventeen he became an office boy, then salesman, for the Standard Oil Company in Cleveland. He went on from there to become a salesman for the Pittsburgh Coal Company, and finally, at age twenty-five, he became the sales manager of the Youghiogheny and Ohio Coal Company.
Coal was king in the United States at the turn of the century. Virtually all of the country's energy needs were met by it. Not surprisingly for an enterprising young American who had started his career in an oil company, Taplin would turn his energies to the coal industry, and especially to establishing a coal business of his own.
His sales experience paid off: in 1913 he bought the Cleveland and Western Coal Company, an imposing name for a small business that as yet only sold rather than manufactured coal. With war breaking out in Europe, however, business boomed in the United States, and soon Taplin's firm was in a position to expand its business and enter coal mining on its own. With the U.S. in the war by 1917, the demand for coal was high and the time ripe for Cleveland and Western to acquire three mines, to be followed by others. Postwar recession and a national coal miners' strike in 1919 did not make a serious dent in the company's fortunes. In 1925, with the incorporation of the Powhatan Mining Company, operator of Ohio's largest mechanized deep mine, the Cleveland and Western Coal Company changed its name to the North American Coal Corporation, or NACCO.
As long as Frank Taplin was president and chairman of the privately owned company, NACCO expanded, despite labor and legal disputes that troubled the company during its early years. More ominous than these problems was the steady decline in the use of coal as an energy source, even though the country's vast coal reserves were second in the world only to the Soviet Union's.
The company's steady growth continued under Taplin's leadership even during the hard-hit 1930s. Although the company suffered financial losses during the Depression, Taplin was in the forefront in the fight to extend NRA codes to the coal industry that would raise coal miners' wages and reduce their hours of work. Unfortunately, his death in 1938 left NACCO rudderless as well as mired in legal disputes.
The outbreak of World War II signalled an end to the Depression and started the upswing of many private fortunes, but NACCO's circumstances were still grim. By 1942, however, a new president had taken the helm: the energetic, able Henry G. Schmidt, who left his engineering position at Goodyear Tire and Rubber Company to guide NACCO back to prosperity during the war years, and to postwar expansion thereafter.
At the end of the war, the future of coal seemed locked into permanent decline. Not only did imported oil become the main American energy source, but so did natural gas, initially abundant but finite in the long run. Significant demand for coal in the postwar years, however, came from utility companies, which were expanding at a dizzying rate to meet Americans' increasing electricity needs. In 1946, only ten percent of NACCO's coal was used by utility companies; by the late 1950s, this figure rose to over fifty percent. The rest of the coal demand came from the steel, cement, and chemical industries. In the postwar period, NACCO mirrored the tendency of other large mining companies toward increasing consolidation and expansion. This occurred in part because of the few large corporations, primarily giant industries and utility companies, that constituted the company's major customers.
By 1952 NACCO consisted of four large coal-mining subsidiaries that engaged in underground mining. Since the late 1930s, however, bituminous coal extracted from underground mines was giving way increasingly to lignite coal extracted from strip mines. Extraction from strip mining was not only more efficient but also more economical and far less dangerous than deep coal mining. As a result, NACCO acquired its first lignite field in North Dakota in 1957. Indian Head Mine, which contained the richest lignite coal deposits in North America, would be NACCO's most productive mine for decades to come. Five years after the acquisition of Indian Head Mine and other mining properties in North Dakota as well as in West Virginia, NACCO became the ninth-largest coal producer in the United States, with 70 percent of its coal purchased by utility com-panies.
Throughout the 1960s, NACCO expanded its coal production and business opportunities with utility companies in New York, Pennsylvania, and Ohio, as well as with the United Power Association in the Great Plains states. In this agreement, NACCO would provide one million tons of coal annually to the power company from its Indian Head Mine. In 1972 NACCO committed itself to provide the Michigan Wisconsin Pipeline Company with billions of tons of coal from its North Dakota reserves, which would be turned into liquified gas. Turning coal into gas for use as a liquid fuel was done successfully by the petroleum-starved Germans in World War II; with natural gas levels in the U.S. reaching a plateau in the early 1970s, gasified coal seemed to have a promising future. In anticipation, NACCO pledged to build the first major coal gasification plant in the nation, to be completed in 1981. With lignite coal mining playing an increasingly important role, NACCO turned its North Dakota and Texas operations in 1974 into a separate operation, the Western Division. In the early 1970s, NACCO's Western Division acquired the Falkirk Mining Company and Coteau Properties Company in North Dakota as wholly owned subsidiaries.
While profits could not have seemed better in the late 1970s, despite the passage of strict federal mine safety laws as well as frequent strikes and walkouts by the United Mine Workers, doubts were growing as to whether NACCO could remain profitable in the future. The replacement of coal with nuclear power, and the certainty of stricter environmental legislation that could raise costs even further, made the future of coal seem dim. By then, Henry Schmidt had long since retired, and a new team of managers, headed by Chairman Otes Bennett, Jr. and President/CEO Ward Smith, were at the helm to oversee a drastic alteration of their company.
In May 1986 the alteration was complete: the company would no longer be a coal-mining company with its entire profit derived from the manufacture and sale of coal, but instead would become a holding company. Renamed NACCO Industries, Inc., the new structure enabled the company to diversify. The North American Coal Corporation became a wholly owned subsidiary; although it was the oldest component of NACCO Industries, it would within a few years cease to be the biggest or most important (in 1990 it generated only 23 percent of NACCO's operating profit). The second subsidiary became the newly acquired Yale Materials Handling Corp., a top-of-the-line forklift truck manufacturer with factories in the United States, Great Britain, and Japan (a joint venture with Sumitomo Heavy Industries, Ltd.).
Market analysts had expected NACCO to diversify into energy-related businesses and, surprised by the dissimilarity of its subsidiaries, forecasted negative consequences. Instead, by 1990 the Journal of Corporate Finance reported that NACCO Industries had become "one of the top performers" on the New York Stock Exchange. No doubt part of the reason for its success was the company's emphasis on decentralization, with each subsidiary operating on its own, with only target-setting and incentives from above.
Only a few years after restructuring, NACCO's coal-mining subsidiary sold off its bituminous coal-mining operations in the East, and concentrated instead on the mining of billions of tons of lignite, surface-mined coal in North Dakota and Texas. Through its long-term contracts with utility companies, the North American Coal Corporation proved to be recession resistant, generating a modest but important cash flow for the holding company's other business ventures. By 1990 the coal company, consisting of its own wholly owned subsidiaries Falkirk Mining Co., Coteau Properties, Sabine Mining Company, and the newest, Red River Mining Company, trimmed its staff by 30 percent and decentralized its operations to its individual mines. With full or partial interest in most of the 37 billion tons of North Dakota's coal reserves, the North American Coal Corporation was the tenth-largest coal-mining firm in the United States, despite trimming off its bituminous operations.
NACCO Industries continued to diversify beyond these two subsidiaries. In 1989 and 1990, the holding company acquired the market leader in forklift truck manufacturing, the Hyster Company, as well as Proctor-Silex, a leader in the manufacture of home electrical appliances. In 1990 NACCO's managers announced the combination of Hyster and Yale to form a wholly owned subsidiary, Hyster-Yale Materials Handling, Inc., which became the biggest industrial lift truck manufacturer in North America (under separate brand names) and a serious competitor on the world market. Hyster-Yale became NACCO's biggest subsidiary, generating 67 percent of operating profit in 1990. The move was hailed on Wall Street as a sign of increased efficiency and long-term profitability. The downside of the merger of the two top-of-the-line lift truck companies was its vulnerability to the vicissitudes of the market: in 1991, profits of the subsidiary fell 14 percent from the previous year, due to 1990's recession.
The year 1990 also saw bold moves on the part of NACCO in the merger of Proctor-Silex, manufacturer of heat-generating electrical appliances such as toasters and coffee makers, with Hamilton Beach, maker of kitchen items such as blenders, mixers, and food processors. NACCO's third subsidiary, Hamilton Beach/Proctor-Silex, became the leader in small kitchen appliances in the United States and, unlike Hyster-Yale, remained very profitable throughout the recession.
NACCO's fourth subsidiary, The Kitchen Collection, acquired in 1988, was a chain of 72 stores (with more planned in the 1990s) located throughout the United States. The Kitchen Collection sold primarily factory-outlet Hamilton Beach/Proctor-Silex appliances and other kitchen items. Though small, The Kitchen Collection expanded continuously and proved to be recession resistant. Together, housewares (Hamilton Beach/Proctor-Silex and The Kitchen Collection) generated 10 percent of NACCO's profit in 1991.
With three subsidiaries acquired in the space of one-and-a-half years, NACCO Industries planned to concentrate on development rather than further business acquisitions. From a venerable coal company to a vibrant and dynamic holding company with dissimilar businesses and global interests (in which coal mining held only a backseat), NACCO became a new company. President and CEO Alfred M. Rankin, Jr., together with Chairman of the Board Ward Smith, acted as the strategists and target setters of the decentralized corporation. Their goal continued to be turning NACCO Industries subsidiaries into the top market leaders in their respective enterprises and globalizing the company. While the 1990s recession dampened profits and resulted in many job layoffs, the worldwide recovery of the market should offset these losses. The North American Coal Corporation already was planning to mine billions of tons of bituminous coal outside of Anchorage, Alaska, for the Japanese market; Hyster-Yale had important interests in Great Britain, Germany (Jungheinrich), and Japan (Sumitomo Heavy Industries), with growing interests in other Far Eastern countries. Cost-cutting and incentive measures resulted in NACCO becoming an aggressive new competitor on the global market.
Principal Subsidiaries: North American Coal Corp.; The Kitchen Collection; Hyster-Yale Materials Handling, Inc. (97%); Hamilton Beach/Proctor-Silex, Inc. (80%).
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