Please ensure Javascript is enabled for purposes of website accessibility

Trip note: The Midwest

  • Tweet
  • Share on LinkedIn
  • Share via email
  • Print
  • Download

April 2023

At the end of 2022, Walter Scott investment managers Laura Clark and Lindsay Scott braved the freezing temperatures of the Midwest to meet with 20 companies from across the region. Here are some of the key insights they gained from speaking to management and employees.

Laura Clark

Investment Manager


Lindsay Scott

Investment Manager

Long synonymous with industrial manufacturing, the Midwest is home to some of the country’s most impressive businesses. What’s notable is how many have not only survived, but indeed thrived, during the years when globalization hit many domestic players hard.

At the end of 2022, we took a two-week trip to the region and what soon became clear was for US manufacturing companies to be truly competitive in a global market there needs to be a high degree of automation and a strong sense of culture.

Nowhere was this more evident than at Fastenal, a distributor of industrial supplies to firms across North America. Automation fills this company’s vibrant distribution center which made for a hypnotic and noisy tour around the facility. Chief executive Daniel Florness, who has been at the company for 26 years, explained how investment in automation had saved the company a great deal of production time – and he said there was more to come.

Elsewhere, we headed to Minneapolis where we met the chief financial officer (CFO) and investor relations team at Graco. The company’s core business of supplying technology for the management of fluids in industrial and commercial applications might sound dull but it is a low-volume, high-margin business. Its products are critical for customers’ manufacturing processes, which results in strong pricing power.

We also visited the world-renowned McDonald’s Corporation in Chicago. On the way, we passed by the corporation’s Hamburger University, its training facility where individuals learn the skills of restaurant management. McDonald’s is an impressive machine of a business, with a strong brand. We particularly like the fact the company has been taking risks with its marketing which is showing through in its numbers.

Staying in Chicago, we met with the CFO of Idex, a manufacturer and supplier of specialty engineered products for, among other things, fire and rescue services, and optics systems. It had many of the traits we look for in companies, including its highly decentralized model that empowers employees to have ownership and accountability of their own units.

Cintas is another business with impressive culture credentials. Established in 1929 by two out-of-work circus performers looking to make money during the Great Depression, it has since evolved into a laundry services business, rental workwear service and now also provides uniforms and other cleaning-related supplies. Key to Cintas’s success has been its guiding principles for all ‘employee-partners’, set out by the founder, including core phrases “honesty and integrity in everything they do,” “competitive urgency,” “positive discontent” and “work shoulder to shoulder”. It may not be rocket science but with employee turnover of just 15%, Cintas is clearly doing something right.

For us, there were two key takeaways from the trip. First, the strong sense of culture at these companies where there is pride in their businesses and products. Several companies we spoke to have been around for more than 100 years, with the “youngest” (Idex) still 33 years old. Nearly all have long-tenured management, employees and customer bases.

Second was that so many of the companies are successful because of decentralized business models. We are attracted to companies where employees are encouraged to act like owners, with P&L responsibility and accountability. It is employees who are often closest to their markets and customers, and we think this puts them in the best position to allocate capital.

All investments involve risk, including the possible loss of principal. Certain investments involve greater or unique risks that should be considered along with the objectives, fees, and expenses before investing.

The holdings listed should not be considered recommendations to buy or sell a security.

Recent market risks include pandemic risks related to COVID-19. The effects of COVID-19 have contributed to increased volatility in global markets and will likely affect certain countries, companies, industries and market sectors more dramatically than others.

This material has been provided for informational purposes only and should not be construed as investment advice or a recommendation of any particular investment product, strategy, investment manager or account arrangement, and should not serve as a primary basis for investment decisions. Prospective investors should consult a legal, tax or financial professional in order to determine whether any investment product, strategy or service is appropriate for their particular circumstances. Views expressed are those of the author stated and do not reflect views of other managers or the firm overall. Views are current as of the date of this publication and subject to change.

The information is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be and should not be interpreted as recommendations. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.

BNY Mellon Investment Management is one of the world’s leading investment management organizations, encompassing BNY Mellon’s affiliated investment management firms, and global distribution companies. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the Corporation as a whole or its various subsidiaries generally.

Walter Scott & Partners Limited (“Walter Scott”) is an investment management firm authorized and regulated in the United Kingdom by the Financial Conduct Authority in the conduct of investment business. Walter Scott is a subsidiary of The Bank of New York Mellon Corporation. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. BNY Mellon Securities Corporation is a subsidiary of BNY Mellon.

Not FDIC-Insured | No Bank Guarantee | May Lose Value

© 2023 BNY Mellon Securities Corporation, distributor, 240 Greenwich Street, 9th Floor, New York, NY 10286.