Murray Ohio Manufacturing Co. Harvard Case Solution & Analysis

Murray’s Introduction:

Murray is a listed company on the New York Stock Exchange. The company is based in Brentwood, which is a suburb of Nashville, Tennessee. The company has a 57-acre manufacturing facility that is located in Lawrenceburg which manufactures the Bicycles and Power Mowers.

The company started off with the bicycle business and later introduced Power Mowers. However, the sales of Power Mowers have exceeded the sales and profit of bicycles.In the last three years, the sales percentage of Power Mowers was 54%, 53% and 62% respectively while the sales of bicycles in last three years was 46%, 47% and 38% respectively.

Problem Statement:

After a record year in 1983, Murray Ohio's earnings declined in 1984. The company was faced with competition from cheap imports and was experiencing declining margins.As a consultant we need to analyze the financial statements of year 1984 and predict whether there is likely to be a change in the company's dividend policy in the future which will be problem for Common Health Group who has invested in Murray for the reliable dividends.

Analysis:

The bicycle business of Murray was started in 1936 when the company was started.The bicycles include arange of models for all set of people, and the bicycles are distributed through the department stores, discount stores, toy stores and other merchandise outlets.

From 1972-1982, the growth of bicycle industry has grown with the rate of 7.8 but has fallen significantly in the five years from 1977-1982. 1983 was the worst year for the bicycles business with the growth of 0.6%. The major reason for the decline was the imports of bicycles from other countries, which increased up to 50% in 1984 and had daunting affect in not only Murray but all the domestic bicycle manufacturers. In 1984, the total domestic market was compromised of 683 million while the imports increased from 281 million in 1980 to 494 million in 1984 which are almost double in the last four years. However, the demand for the bicycles is expected to remain strong if the producers able to reduce the costs of the production to compete with the foreign producers and the value of dollar plays it positive part.

Murray entered the power mower marker in late 1960 s and made a huge progress and became the market leader in U.S in 1984. The mowers are marketed through the national and regional chains. Murray has also taken a step ahead by making its own marketing firm to sell its mowers to the outdoor power equipment dealers which has a large share of the higher priced mower market. The competition for mowers is not as strong for the bicycles because of no major import competitor has existed as yet but Honda has started to import the mowers, which have the ability to affect the operation of mowers the same way it has in bicycles.

The sales of Murray increased significantly in the 1975-1979 era up to 158% and the profit grew by 125% and the profitability of the company was stable during the period with the return on sales of 3.5% and return on equity of 13.5%.

Murray has faced problems since the start of 1980 s when the competition from foreign companies started growing and imports begin to rise and the profitability of the company declined significantly. The average return in sales and return on equity decline to 2.6 percent and 10.8 percent respectively. However, the company has successfully provided the dividend to its shareholders up till now but the year 1984 has been a very difficult year for Murray as there was no growth in sales and decline in the earnings.

The main factors for this decline are the imports of bicycles have increased up to 55 percent which has affected the pricing of the bicycles and the production level and sales for the bicycles. Another factor in this decline is the strong competition from the domestic rivals in both bicycles and the power mower, which resulted in increased pressure on the pricing of the bicycles which has resulted in lesser profit margins.The Murray Ohio Manufacturing Company Case Solution

Power mower segment has performed significantly better than the bicycles segment, but increase in imports can also affect this segment like it has affected the bicycle segment which will significantly affect the profitability of the company. The sales of mowers has increased by more than 15% while the sales of bicycles decreased by 19% in 1984 and the operating profits has decreased significantly by 72%. ..........................

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