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K-tron - In the long run it's a weighing machine
Posted by: batbeer2 (IP Logged)
Date: June 21, 2009 03:27PM

K-Tron

1) Is somewhat immune to the economic cycles.
2) Has a strong balance sheet.
3) Sells for a 10% recession FCF yield.
4) Is focussed on long term growth with the interest of shareholders in mind.

Now that is all you need to know...... just to give some of the gurufocus members something to poke at, I shall expand on that.

1) K-Tron is a New Jersey corporation founded in 1964. K-Tron is a recognized leader in the design, production, marketing and servicing of material handling equipment and systems. K-tron serves many different industrial markets through two business lines.

- The Process Group focuses primarily on feeding and pneumatic conveying equipment.
- The Size Reduction Group concentrates on size reduction equipment, conveying systems and screening equipment.

For more information, visit www.ktroninternational.com.

From the 10-k:
"Our Process Group has a global service network that enables us to respond to customer calls with respect to our K-Tron Feeders brand and K-Tron Premier brand feeding and pneumatic conveying equipment within 24 hours almost anywhere in the world. We also sell parts to our customers, and our service and parts business associated with our sales of feeding and pneumatic conveying equipment is an important source of revenue for us.
.... SNIP .....
A majority of our Size Reduction Group’s revenues is derived from the sale of replacement parts. Each company within our Size Reduction Group has a large installed base of long-lived equipment, and every machine and part sold, including specifications and drawings, is registered in a digital database to provide customers with fast and efficient support. "

Let's say approximately 50% of K-tron revenue is from replacement parts and service, most of this is from the size reduction business line. And most of that is in the power generation (coal) and paper industries. Other major industries it serves are the food and pharmaceutical business. The problem in 2009 is with the highly cyclical plastics business.

So..... due to the fact that the majority of clients are in noncyclical industries IMO K-tron is somewhat immune to the economic cycle.

Just for fun.... from the latest 10-Q
"The decreases in our revenues and net income in the first quarter of 2009 compared to the same period in 2008 were primarily due to lower sales to customers of our process business line, especially in EMEA/Asia ....SNIP.... which more than offset somewhat higher sales to customers of our size reduction business line."

Management seems to agree. The company has never accumulated cash on the balance sheet.

2) With ~40m of cash on hand (and growing), 100m of current assets, 40m of current liabilities, a consistently profitable business under recession conditions and ~30m of debt maturing in 2011, IMO K-tron is rock-solid.

3) Market cap of ~230m; FCF of ~22m => ~10% free cashflow yield.

4) Acquisitions of Colormax Ltd, Pnuematic Conveying Systems, Pennsylvania Crusher Corp/Jeffrey, JMJ Industries (Gundlach), Premier Pnuematics, Wuxi Chenghao Machinery, Rader Companies were funded with cash from operations. Revenue has grown (duh) and net and gross margins as well (wow). All without any undue leverage.

"Penn Crusher turned down K-Tron's offer of $23.5 million. Cloues didn't back down, and didn't up his bid. Two years later Penn Crusher agreed to the deal because the majority shareholder was getting on in years and decided to do some estate planning. K-Tron revenue immediately jumped 39%" - Forbes, October 29, 2007

IMO these are clear signs that the company is run for the shareholders.

Risks

- Exposure to cyclical chemicals and plastic industries.
- Any negative impact on K-Tron's coal business (size reduction).
- Protracted global economic slump.
- Strong US dollar

IMO K-tron is a bargain. Any and all questions welcome as usual.


Stocks Discussed: KTII,
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Rating: 3.5/5 (11 votes)



Re: K-tron - In the long run it's a weighing machine
Posted by: traderashish (IP Logged)
Date: June 21, 2009 05:09PM

what do you value it at?


Stocks Discussed: KTII,
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Rating: 2.8/5 (6 votes)



Re: K-tron - In the long run it's a weighing machine
Posted by: Dr. Paul Price (IP Logged)
Date: June 21, 2009 06:28PM

K-tron [KTII] closed at $79.73 /share and has trailing EPS of $9.26.

Earnings are starting to drop dramatically with both Yahoo Finance and Value Line showing much lower numbers for 2009 & 2010.

....................... 2009 Est. ........... 2010 Est.
Yahoo .............. $5.59 ................. $6.20
Value Line ......... $5.60 ................. $4.40

Four Insider sales took place from June 16 - June 18, 2009 at prices slightly above today's quote.
The sales totaled 7058 shares. There were no insider buys.


At 14.2x expected 2009 estimates KTII's P/E is now well above its 10-year median P/E of 11. In six of the years since 1996 the shares traded at single-digit mulitples.

Value Line see a 3 - 5 year P/E of 12 on earnings of $5.50 to arrive at a mid-point 3 - 5 year price target of $67.50 [LOWER than today's price].

Profit margins in 2007 - 2008 were highly inflated compared with their results in all other years. That's why the earnings are expected to fall off so much.

What makes this a buy?


Stocks Discussed: KTII,
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Rating: 2.9/5 (7 votes)



Re: K-tron - In the long run it's a weighing machine
Posted by: batbeer2 (IP Logged)
Date: June 21, 2009 11:31PM

>> what do you value it at?

IMO K-tron is no longer a bargain above $ 120


Stocks Discussed: KTII,
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Rating: 2.9/5 (8 votes)



Re: K-tron - In the long run it's a weighing machine
Posted by: batbeer2 (IP Logged)
Date: June 21, 2009 11:50PM

Thank you for your questions.

>> Profit margins in 2007 - 2008 were highly inflated compared with their results in all other years. That's why the earnings are expected to fall off so much.

Profit margins were high yes. What makes you think they were inflated ?

>> Value Line see a 3 - 5 year P/E of 12 on earnings of $5.50 to arrive at a mid-point 3 - 5 year price target of $67.50 [LOWER than today's price].

I disagree.

>> What makes this a buy?

IMO it's a wonderful company at a reasonable price.


Stocks Discussed: KTII,
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Rating: 2.6/5 (9 votes)



Re: K-tron - In the long run it's a weighing machine
Posted by: Dr. Paul Price (IP Logged)
Date: June 22, 2009 05:18AM

Net profit margins in the 8 years from 1999 - 2006 varied from a lwo of 1.5% (in 2001's recession) to a high of 8.7% (at the start of the final blow-off boom in 2006).

2009's estimated net profit margin is expected to regress back to 7.6% and Value Line thinks it could drop to 6.8% in 2010.

The 2007 and 2008 numbers were the outliers at 10.4% and 10.6% during the great [and unsustainable] credit and housing craziness period which is unlikely to repeated anytime soon (if at all).

To assume that 2007 - 2008 was the NORMAL period means ignoring all factual data from every other year.

You have made no case whatsoever for these shares being "reasonably priced".

Note: Saying, "I disagree" with no further comments to back up your opinion is worthless dribble.


Stocks Discussed: KTII,
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Rating: 2.7/5 (7 votes)



Re: K-tron - In the long run it's a weighing machine
Posted by: batbeer2 (IP Logged)
Date: June 22, 2009 11:13AM

>> The 2007 and 2008 numbers were the outliers at 10.4% and 10.6% during the great [and unsustainable] credit and housing craziness period ...

There may or may not be a relationship between the housing bubble and the high margins in 2007 and 2008. I cannot see it. Moreover, assuming all companies with good margins in these years (say.... CALM) are a result of the housing bubble will guarantee you miss out on some great opportunities.

Consensus earnings estimates are exactly that. A cheery consensus.....

I believe Value line et al are underestimating the earnings power of KTII. I have given some qualitative arguments why KTII should do better than most poeple think.

>> Saying, "I disagree" with no further comments to back up your opinion is worthless dribble.

I disagree.

Anyway, we are debating the quality of my analysis and not the stock. that was not the intent of the OP.

Does anyone have anny questions or thoughts on KTII ?


Stocks Discussed: KTII,
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Rating: 2.7/5 (10 votes)



Re: K-tron - In the long run it's a weighing machine
Posted by: Dr. Paul Price (IP Logged)
Date: June 22, 2009 02:50PM

Ride it down like Batbeer2 did with WPO and USG.


Stocks Discussed: KTII,
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Rating: 2.3/5 (7 votes)



Re: K-tron - In the long run it's a weighing machine
Posted by: batbeer2 (IP Logged)
Date: June 22, 2009 03:18PM

Doc,

Exactly one year ago I challenged you :1147:http://www.gurufocus.com/forum/read.php?2,25919,30644#msg-30644:/1147::

"Go on record with any number of your favourite stocks and i will go on record with mine. You can change your holdings any time you see fit. The one that outperforms the other by > 50,00 % within 24 months wins. If this does not happen, we will see who is ahead at the end. We will ignore dividends and trading costs so we can use the GF portfolio tool. If you win i will pay for your premium membership of this site for 1 year. If i win you will pay for mine and be humble. The lenght of the bet is negotiable, the cost isn't. "

You never responded.


Stocks Discussed: KTII,
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Rating: 2.8/5 (9 votes)



Re: K-tron - In the long run it's a weighing machine
Posted by: batbeer2 (IP Logged)
Date: June 24, 2009 02:15PM

Man....... I could have just posted a link and be done with it.

[www.oldschoolvalue.com]





Stocks Discussed: KTII,
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Rating: 3.0/5 (4 votes)



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