Doing a year in review and outlook is always a little fun since you have perfect hindsight and are guaranteed to be 100% wrong. I closed last year’s review by saying, “With our expertise and capital, we think that strong businesses can become industry leaders in the post-pandemic landscape.” Unfortunately, as we approach the second anniversary of broad shut-downs in the US, the post-pandemic world still hasn’t emerged. Instead, we have the highly contagious Omicron variant ravaging the world and the US, creating a whole new issue – the tight labor market is even tighter with people out of work sick or unwilling to go back to work. This time the government isn’t shutting down the country; companies just simply don’t have enough workers to operate.
So, looking back to 2021, it turned out to be a very good year for ORG. Across our Partner Companies, every single one of them surpassed their 2019 / 2020 revenue and earnings. The year was challenging but successful. In addition to dealing with sick employees, family members, and customers, the runup in commodity prices, transportation, and labor costs were significant. We witnessed the cost of a container from Asia increase to over $24,000 from less than $3,000 in under six months. We watched the price of steel, resin, and lumber more than double in a matter of months. As a business owner, it felt like there was no place to hide from inflation. Heck, my good friend that has a restaurant selling chicken wings had to put a surcharge on each wing! I don’t care what the government statistics say on inflation; it was real in 2021.
This new environment led to some good news and bad news. There are very few CEO’s in the US that have managed businesses through inflationary environments. When companies moved quickly to pass on price increases, they managed their margins and performed well in 2021. Companies that didn’t were caught behind working harder to make the same or less than they did in the past. The good news is that demand largely remained intact even with the higher prices. Fortunately, the price shocks of the first half of the year seem to have moderated– except for one, wages.
Each April, we host an Investor Forum for our investors and management teams. For 13 years, I have stood before the group and given a recap on the prior year and our outlook. For 13 years, we have complained about the difficulty of hiring great talent, and it’s now worse. The American Trucking Association reported a shortfall of 80,000 drivers in 2021 and is forecasting a shortage of 160,000 drivers by 2030. The number one reason driving this shortfall is retirement, and the trucking industry isn’t alone. Although this is just one industry, the same issue is playing out everywhere we look. Automation and technology will help, but in the short-term business owners will have to pay more for good talent– and be prepared to pass on the cost. Commodity prices and certain other inflationary trends should moderate in 2022 as supply chains reach a new normal. Prices may not get back to pre-pandemic levels, but most businesses have now adjusted their pricing and better manage their customer’s expectations. Getting and keeping talent will be a challenge for 2022 and beyond.
As we look forward to 2022, most of our Partner Companies are forecasting modest improvements in financial performance over 2021. Overall, I would consider the outlook conservatively optimistic but uncertain. Demand still seems strong, and supply constraints continue to exist, which should moderate as the year goes on. We’ve had great success with targeted add-on acquisitions at our Partner Companies and continue to believe this will be a good way to augment organic growth. We believe this continues to be an environment where industry leaders with a strong capital base can capture market share from weaker competitors. As always, ORG continues to actively look for great companies to partner with where we can help support their long-term growth.
Sincerely,
Jon Gormin
Managing Director, Owner Resource Group