North America - Lehigh Cement Company Quiet Giant Lives in Lehigh Valley and Helps Build the World

By Mike Principato for EPBJ 1/27/02

Could there be a product less glamorous than cement?

Even in the country's current economic doldrums, tech entrepreneurs from grouchy Lawrence Ellison to bubbly Jeff Bezos attract more media attention in a week than any cement tycoon has in a lifetime. And few consumers are ever heard to exclaim, "Wow, can you believe the uniformity and durability of that just-poured highway surface?" the way they might coo over a new 19-inch flat screen monitor.

But long before Gates, Ellison, Jobs and Bezos, back when "infrastructure" didn't refer to a zillion miles of wimpy fiber optic cabling, but to roads and pipes and retaining walls and dams all over the U.S. of A., the Lehigh Valley was the cradle of the cement industry that made that infrastructure possible. And to this day, the cement industry chugs along with a predictable and dependably profitable growth curve that might turn technology barons CRT-green with envy. In the earliest days of the cement industry in 1897, a young General Harry Trexler and a few other prominent local businessmen founded Lehigh Portland Cement Company. Starting with one plant in Ormrod, Trexler's company grew rapidly as the United States and Canada built cities and highways to connect them, consuming millions of tons of cement along the way.

105 years later, Lehigh Cement Company - the "Portland" was dropped last month to better reflect the company's diverse product line- is now a subsidiary of one of the world's three largest construction materials companies, HeidelbergCement AG, Heidelberg, Germany. HeidelbergCement AG, a publicly owned company traded on the German Stock Exchange, employs 36,000 and grossed over $6 billion in 2000. The concern's core business is in cement and concrete (which is what cement becomes when mixed with aggregates for stability and strength); in Europe, HeidelbergCement AG is a leading manufacturer of building materials as well.

It all started, however, with Portland cement. "The Lehigh Valley is the cradle of the cement industry," states Lehigh Cement Company's President and CEO Helmut S. Erhard. He should know: HeidelbergCement AG's North American operations generate one-third of the conglomerate's global sales and are overseen by Erhard and his staff from Lehigh Cement Company's corporate headquarters in Allentown, which employs about 500 people. Interestingly, however, only a small percentage of the cement sold by the firm is manufactured anywhere near Lehigh Cement Company's offices.

Erhard, who's also a member of the Managing Board of HeidelbergCement AG, is an engineer who earned the top spot at Lehigh Cement Company last year. The German native acknowledges that, given Lehigh's far-flung North American operations, the company's headquarters could be located just about anywhere on the continent.

"But there's a rich tradition of cement making here, and we have an excellent work force," explains Erhard, who speaks impeccable English and is clearly enjoying his adopted American home.

Size matters

Cement may be a dry product and an even drier subject, but there's nothing mundane about the enormous capital investment required to convert limestone, shale or iron ore into the fine white powder Lehigh Cement Company sells all over the world.

"This is an industry that's been consolidating, and one where success has a lot to do with company size," says Erhard, who says the competitive and capital barriers to entry in the cement business are formidable. Roughly one-third of the cost of every metric ton of cement is energy cost. Coping with environmental regulations that frown upon dust, heat and noise- the three primary byproducts of cement making- is expensive. And then there's the cost of the equipment that blasts the raw materials off quarry walls, crushes them into powder and bakes them at 2,700 degrees F to form "clinker," marble-sized pellets that when mixed with gypsum result in cement.

"For example, we just invested $260 million for one kiln in our plant in Maryland," he adds. "The cement business requires continuous reinvestment, and very long-term thinking."

It may be that industry characteristic that caused a gradual sell-off of many American-owned cement manufacturers to foreign companies since the 1970s. U.S. shareholders typically want fast and substantial returns on their invested capital, and though HeidelbergCement AG is certainly profitable- the company's operating income averages about 10% per year- no one would confuse the cement industry with biotech.

"About 80% of all the cement companies in the United States are foreign owned now," says Erhard.

Critical mass

Few industries transcend international markets like cement. Mature markets need it to replace aging roadways and buildings; emerging markets need it to build new ones. Operating on 4 continents and in 50 countries, HeidelbergCement AG and its Lehigh Cement Company subsidiary are insulated against the cycles of the construction business they serve. "There is no 'U.S. cement market,' asserts Erhard, making the point that economies tend to be regionalized in status- a commercial construction boom in Seattle need not mean anything in Secaucus. Erhard says smaller cement companies held hostage to one or a handful of regional economies simply can't fare as well as global producers like HeidelbergCement AG.

"When the market is slowing in the U.S., as it seems to be now," explains Erhard, "we're still able to grow our business in emerging markets like Central Europe or Asia."

Not that HeidelbergCement AG is purely a low-price Goliath. Public Affairs Manager Liz Mikols says Lehigh Cement Company has "a reputation for outstanding technical expertise and engineering support that dates back to the 1920s."

"This is an easy industry to take for granted, and Lehigh Cement Company's been a quiet company in the Valley for a long time. But the truth is, without high quality cement, it would be impossible to build sound buildings, depend on clean water, or travel efficiently and safely around the world," she says. Lehigh Cement Company's product quality is respected all over the world," Erhard adds. "Lehigh White," one of the company's products produced by his subsidiary, is considered one of the finest grades of cement in the world.

Which partly explains why the "Portland" has been eliminated from the Lehigh Cement Company name. Erhard explains that Portland cement was the name given to a high quality cement product originally produced in and named after a city in England. Over the past 10 to 15 years, however, "blended" cements have become more popular than the purer Portland grade.

"We feel the new name and logo better reflects the broader scope of our company and its products," says Mikols.

Article reprinted with permission. Originally published in The Eastern Pennsylvania Business Journal on January 27, 2002.

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