Earlier this week there was a press release announcing that a small, innovative and progressive LED lighting company, START Lighting, had recently joined NEMRA. Now normally a small manufacturer joining an association isn’t too noteworthy, and, quite frankly, it isn’t, but it brought to mind a few things:
- That NEMRA agents, traditionally more supply-oriented, are getting more and more involved in lighting. While lighting agents may control the new construction market, we hear more and more that NEMRA agents are involved in the growth of the lighting industry as they are involved in the lighting renovation market. And while some distributors may not like this, they are also generating revenues at the ESCO level for manufacturers.
- With so many lighting manufacturers in the industry, being number 94 on a lighting agent’s linecard unfortunately doesn’t capture any share of mind, which is what is necessary for generating revenue.
- Many manufacturers feel that the NEMRA meeting is either THE or one of the key conferences of the year. It attracts over 1900 people and, most importantly, it is the sales meeting for many manufacturers. Any manufacturer of consequence attends as does a very high percent of the NEMRA rep members.
- NEMRA essentially represents, and speaks, for the manufacturer sales organization as 80% of industry manufacturers represent at least 60% of industry sales (and increasing as some direct sales manufacturers have mixed in some reps in certain territories or aspects of their offering).
- NEMRA offers reps, and manufacturers, the opportunity to network and discuss industry issues … and recommends solutions to some of the issues (POS, CRM connectivity, sales reporting, rep best practice sharing, etc)
But, back to START, they recognize that they need to network to quality reps and be participants in industry conversations while being exposed to industry initiatives that will help drive their business. In fact, the CEO, Jason Barbour said “NEMRA gives us not only improved credibility and visibility in the industry, but a faster path to finding the right representative in the right regional market.”
And as a small company where investments are scrutinized for their ROI and joining associations are questioned as it relates to their value, START saw value in joining an association tied to driving revenue and supporting their sales organization … the people who connect to their customers.
Assuming a significant number of manufacturers become NEMRA members, this can have benefits for distributors as well as the reps.
- The reps gain more access to lines
- Distributors have more options of quality suppliers to be able to control their destiny as it relates to capturing lighting projects and profiting from them (presuming they pursue the business rather than solely quote it) and
- NEMRA may be able to aggregate training, either from these suppliers or develop innovative training and marketing options that are co-funded by these companies, provide a networking environment for complementary companies.
- Develop strategies to help reps pursue the elusive ESCO market and gain more insights into the renovation / remodel market so that they can add more value to their distributor channel partners.
For a small lighting manufacturer (and manufacturer in general), NEMRA can be the start for accelerating their growth.
Every two years, the North Central Electrical League (NCEL) hosts an EXPO giving attendees an opportunity to explore a variety of lighting, battery, ventilation, lamp, tool, and other electrical products and solutions. START Lighting was in attendance this April, displaying new commercial LED products along with some proven performers for prospects and customers.
The Minneapolis, MN EXPO is more than just another place to set up a company booth. With attendance numbers over 10,000, START Lighting was able to market to a several critical customer groups: ESCOs, distributors, and individual customers, who specifically visited the show to seek out innovative lighting products—and who were ready to place orders immediately.
The Upper Midwest Electrical EXPO offers “a good opportunity for us [to put] our face in front of the customer,” said Mike Rainsberger, VP of Operations at START Lighting.
START Lighting brought more options to this year’s show, displaying HID and panel light modules in addition to canopy, shoebox, area lights, and interior models.
At the EXPO, attendees were able to see the impressive abilities of the HID model, which boasts a 50,000-hour lifespan, 360° illumination and can operate in extreme conditions (from -20°F to 140°F). Applications include streets, parks, campuses and apartment complexes, and consume 75% less energy than standard HID lamps. Additionally, START’s HIDs can be installed as new or retrofitted in already established fixture environments.
Panel light fixtures impressed show-goers as well. With a 50,000-hour lifespan and 50% less energy used than with standard fluorescent lamps, this model also is more energy efficient than standard fluorescent lamps and helps promote stress-free surroundings.
Rainsberger was pleased that, “we had a good response [at the EXPO] to these products.” Customers appreciated the increased durability of these models, offering the user more uniform lighting, excellent optics and an all-around pleasing quality.
Innovations are an integral part of START Lighting’s business. Expect a new wave of LED lighting advancements at the next EXPO!
General Electric’s (NYSE:GE) Appliances and Lighting division produced $8.8 billion in sales for GE last year. The company tried to sell the appliances half of that division to Electrolux, failed, then lit upon Haier as an alternative buyer. But GE kept tight hold of its lighting division.
And now it’s doubling down.
Present at the inception
Why is GE holding on to its lighting division, even as it parts with appliances? It could be as simple as this: GE is light bulbs.
The company that Thomas Edison founded is so well known for light bulbs, in fact, that its famous 80’s tag line “We bring good things to life” is often misquoted as “We bring good things to light.” Yet GE has evolved over the years from a maker of incandescent bulbs (which are on their way out) into the top-rated seller of compact fluorescent light (CFL) bulbs on Amazon.com, and into a specialist in LED lighting today.
As reported on Bloomberg earlier this week, GE has just announced plans to discontinue production of CFLs entirely, and focus on LEDs instead. The switchover is slated to be complete by the end of this year. Although much more efficient than the incandescents they replace, CFLs are not always popular with consumers. They cost more up front than incandescents, and are less efficient than LEDs — resulting in less cost savings over time.
Now, caught between the proverbial rock and a hard place, CFLs may be going the way of the dodo. According to Bloomberg stats, nationwide CFLs control only a 15% share of the lighting market, and that’s declining. LEDs have 15% as well, but that share is growing, and GE predicts that by 2020, LEDs will represent 50% of all light bulbs used in the U.S.
Perhaps most important, because LEDs are essentially microchips writ large, they offer versatility that appeals to GE as a means of widening its “smart home” market share — by linking lighting to smartphones via Bluetooth, for example, or even using light bulbs to extend Wi-Fi ranges within the home. And the fact that LEDs can sell for as much as five times the price of CFLs? That’s just gravy.
Hold up a sec. What was that about LEDs and microchips?
LEDs — light-emitting diodes — are basically just semiconductors that emit light when activated by electricity. That means that for investors interested in riding General Electric’s coattails into this industry, there are a whole lot more investing opportunities than just buying GE stock itself.
Here are three of them.
With a market cap of only $760 million, small-cap Veeco Instruments (NASDAQ:VECO) offers arguably the greatest potential to grow alongside growing consumer interest in LEDs. Veeco makes the equipment that makes LEDs. It’s not profitable at present, but generated $54 million in free cash flow last year, according to data from S&P Capital IQ. Weighed against the company’s small market capitalization and large cash hoard ($400 million, and almost no debt), that works out to an ultra-cheap enterprise value-to-free cash flow ratio of just 7.5.
On the minus side: Veeco earned no profit in 2014, or in 2015, either, and is expected to lose money in 2016 as well before returning to profitability. For a price this cheap, “You pays your money and you takes your chances.”
Investors seeking clearer growth prospects might prefer to look at the granddaddy of LED investments, Durham, North Carolina-based Cree (NASDAQ:CREE). Cree sports a $2.8 billion market cap, and more than $400 million (net of debt) in the bank.
Like Veeco, Cree is currently unprofitable from a GAAP standpoint. But also like Veeco, Cree generates copious piles of cash from its business. In fact, the past 12 months saw Cree generate $102 million in real cash profits. That works out to an enterprise value-to-free cash flow ratio of just 23.5 on the stock. If Capital IQ estimates of Cree growing its profits 38% annually over the next five years are anywhere close to correct — Cree could be a bargain.
Like the idea of investing upstream in LEDs, but don’t like the idea of buying stocks that don’t earn GAAP profits? Applied Materials (NASDAQ:AMAT) is an LED equipment-maker like Veeco. But unlike Veeco, Applied Materials made $1.4 billion in profits last year. Granted, only 69% of that ($948 million) was backed up by real free cash flow, so the stock’s EV/FCF ratio isn’t as pretty as its P/E. But with a price-to-earnings ratio of only 15.3, and a growth rate of 15.3%, Applied Materials looks pretty cheap anyway.
Bonus points: Applied Materials pays a 2.3% dividend.
And there you have it folks. Three stocks that, like GE, hope to ride the wave of consumer adoption of LEDs over CFLs. None of them have the size, scale, or name recognition of General Electric, but for investors hoping to sneak in on the ground floor of the LED phenomenon, that might work to your benefit.
At these low prices, it certainly can’t hurt to look. You just might bring a great bargain to light.