(Updated Dec. 4) — Quebec City manufacturing firm Sigma Industries plans to get out of some of its product lines for the agricultural equipment and bus markets.
The company said Tuesday that its decision to terminate some of its production contracts is due to cost overruns from bringing in new technology at its Sigma OH plant in Ohio, “which caused an increased amount of work to be outsourced.”
Affected production relates mainly to contracts announced last September, the company said. It expects to transfer the remainder of its contracts for such business in the next few weeks and expects a cut in overall sales worth about $13 million.
“Despite the resulting consequences, evidence that Sigma would not have generated the return on invested capital initially anticipated on these programs motivated our decision,” CEO Denis Bertrand said in a release Tuesday.
“Nonetheless, we continue to perceive promising business opportunities in the heavy equipment and truck markets, although the latter continues to be impacted by the global economic and financial crisis. Our now-available production capacity could then be used to exploit these avenues.”
Sigma executive vice-president Bertrand Cote said in a brief interview Thursday that the affected production will come from the Sigma OH plant at Ashtabula, about 90 km northeast of Cleveland. Sigma bought the plant, formerly known as Pickens Plastics, earlier this year.
Sigma OH was producing some plastic parts for original equipment manufacturers (OEMs) in the ag sector, Cote said.
Cote said the decision will not affect farm product lines made at two other Sigma subsidiaries, Faroex and PNS-Tech.
Faroex, headquartered at Gimli, Man., north of Winnipeg, makes composite parts for the agricultural, automotive, consumer and military supply industries. PNS-Tech, based at St-Agapit, southwest of Quebec City, makes parts for farm equipment including s-tines, cultivator sweeps, discs, hubs and chisel sweeps, as well as parts for snow removal equipment.
Sigma also said Tuesday it will close its Groupe Synergy Composites plant at Chesterville, Que., where it makes composite bodies for industrial service trucks. The plant, which employed about 15 people, will close at the end of this month and its production will move to other Sigma facilities.
The company’s decision follows a fiscal year of reduced sales due to “reduced activity” in the heavy truck market, plus the rise of the Canadian dollar. Sigma on Aug. 28 reported $69.8 million in sales for fiscal 2008, down from $83.2 million the previous year.
That said, the company in August reported increased sales in agricultural and industrial products and “further pursued our promising foray in the rapidly-growing wind power market.” Total sales over those three sectors rose from $9.6 million in 2007 to $14.2 million in 2008.
Sigma said to expect cost overruns to generate a greater loss before income taxes in its second quarter of fiscal 2009 ended Oct. 25, compared to its first quarter. The company said it also expects the overruns to impact its third quarter.