1. DOUGLAS DYNAMICS INC.
TEAM MEMBERS: BHARATH CHANDRASHEKHAR, ROBERT EBERHAD, PURVI MITTAL, SHALINI R SIVARAJAH
Presented: April 22, 2014

2. AGENDA Introduction Company Overview Macroeconomic Overview
Market Prospects
Financial and Ratio Analysis
Financial Projections
Valuation Tools
Recommendation

3. COMPANY OVERVIEW
North American leader in the design, manufacture and sale of snow and ice control equipment for light trucks
Founded in 1977, but traces history back to 1948 founding of Fisher Engineering
Headquartered in Milwaukee
Previously owned by steel companies and private equity; went public in May 2010
Acquired TrynEx International in 2013 to expand product line and geographic reach

4. DISTRIBUTION NETWORK
Worldwide distribution network of over 2,100 points of sale
Focus on “snow belt regions in North America
80% of distributors are east of the Mississippi River
Also have distributors in China, Finland, South Korea, Scotland, Northern Ireland, Germany, Norway, Sweden, Spain, and Australia
Source: Company 10-K and 2013 Investor Presentation

5. CONSUMER LOYALTY Installed base of over 500,000 units
Actively used snowplows are replaced every 7-9 years
Different brands based on needs of user
Razor/blade model – even in years that someone doesn’t replace high durability items, they will replace consumables more frequently or as usage allows, i.e. in heavy snow fall years, users are less likely to replace entire system but instead make sure that the equipment will work through maintenance. When snow stops (summer months and poor snowfall years) they are more likely to “decommission” the plow long enough to replace the major components because they are not missing out on revenue opportunities
Sources: Company 10-K and 2013 Investor Presentation

6. EMPLOYEES AND LEAN MANUFACTURING
Non-union workforce with an average tenure of 9.3 years
Temporary workers allow for low fixed cost model to respond to consumer demand
Intense focus on lean manufacturing leads to high operational efficiency
- Production facilities in Milwaukee; Rockland, Maine; and Madison Heights, Michigan
Source: 2013 Investor Presentation

7. MACROECONOMIC OVERVIEW

8. KEY INDUSTRY DRIVERS Annual average rainfall (precipitation)
Value of Construction
World price of Steel
Trade-Weighted Index
World price of steel
The price of steel moves in response to global supply and demand for steel. In periods of strong demand, rolled and drawn steel producers can pass on part of the cost increases to customers through higher prices, resulting in higher revenue but generally lower profit. Conversely, when demand for steel weakens, producers are forced to undercut their selling prices, lowering revenue. The world price of steel is expected to decrease in 2014, posing a potential threat to the industry.
Source: Ibisworld

9. INDUSTRY OUTLOOK
Pent-up demand and innovative plowing systems will be key growth drivers for the industry
Profit margins are expected to remain elevated due to use of lean manufacturing techniques
Manufacturers aim to mitigate rising steel prices by passing them down to consumers higher sale prices
Companies taking cost-cutting measures to increase profitability
Increase in construction leads to increase in total area that need snow clearing
*Douglas decided to close one of its 3 domestic manuf plants in 2010
Source: Ibisworld

10. PORTER’S INDUSTRY ANALYSIS
Rivalry Competition
MEDIUM
Supplier’s Bargaining Power
HIGH
Buyer’s Bargaining Power
Substitutes
LOW
Threat of new entrants

11. SWOT ANALYSIS STRENGTHS
-Leading NA snowplow manufacturer for light trucks
-Customer loyalty and Brand equity
-Extensive Distribution network~2100 points of sale
-Flexible, Lean Enterprise platform
OPPORTUNITIES
-TrynEx Acquisition expanded product lines
-Growth potential in Europe and Asia
-Replacement driven business
-Unique Financing program for distributors
WEAKNESSES
-Decline in snowfall levels is business risk
-Issues with dependencies on Management
-Lack of Financing options for end-users
THREATS
-Fluctuating steel and petroleum prices
-Financial market conditions affects their pension plans
-Interest rate risk due to variable debt obligations
SWOT

12. STOCK PERFORMANCE

13. MARKET PROSPECTS
Source: Yahoo.Finance

14. MARKET COMPARISON

15. COMPARABLES
Source: CapitalIQ

16. COMPARABLES VALUATION
Source: Yahoo.Finance

17. FINANCIAL ANALYSIS

18. PROJECTIONS & DISCOUNT RATE

19. VALUATION - DCF

20. RECOMMENDATION: WATCHLIST*
DCF VALUATION=>10.73
COMPARABLE VALUATION=>12.51
CURRENT SHARE PRICE=>16.70
Good Business Story but Poor Capital Management
Reconsideration should be based on a more sustainable dividend policy