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Update: Mocon, Inc.

November 16, 2010 | About:


Back in February of this year I wrote a short piece on company by the name of Mocon Inc. At the time I believed that it was a solid little company in the micro cap category. In addition, the company had a very attractive valuation in a profitable (albeit) tiny niche. The company recently reported 3rd quarter numbers which show continued strength. A brief excerpt from the company’s press release;



{Net sales for the third quarter 2010 were $7,749,000, a new record for the Company, and an increase of 17 percent compared to $6,601,000 for the third quarter 2009. Operating income increased 32 percent to $1,553,000 for the third quarter 2010 compared to $1,180,000 for the same period last year. Net income for the third quarter 2010 was $1,029,000, an 18 percent increase compared to $874,000 in the third quarter 2009. Diluted earnings per share were $0.19 in the third quarter 2010 compared to $0.16 for the same period in 2009. Nine-month sales were $22,194,000, an increase of 16 percent compared to $19,194,000 for the first nine months of 2009. Operating income increased 64 percent to $3,869,000 for the first nine months of 2010 compared to $2,356,000 for the same period last year. Net income and diluted earnings per share were $3,043,000 and $0.57, respectively, for the first nine months of 2010, increases of 70 percent and 78 percent, respectively, compared to $1,788,000 and $0.32 for the same period in 2009.

We experienced increased sales in all of our major product groups in the third quarter 2010 compared to third quarter 2009. Our international sales, which accounted for 59 percent of consolidated sales in the current quarter, grew by 31 percent over the third quarter in the prior year due primarily to a strong showing in our Asian markets. Sales of our permeation equipment and services, which accounted for 55 percent of total consolidated sales in the third quarter 2010, increased 15 percent compared to the same period in 2009. Sales of our gas analyzers, sensors and detectors, which accounted for 19 percent of our total consolidated sales in the third quarter 2010, increased 12 percent compared to the third quarter in 2009. Sales of our packaging products and services, which accounted for 16 percent of total consolidated sales in the third quarter 2010, increased 12 percent compared to the same period in 2009. In addition, we experienced a strong quarter in our analytical testing and consulting services area.

The increase in sales in the current quarter, together with our continued strong gross margins, were the main drivers in our operating income growth over the same quarter in 2009. Our selling, general and administrative expenses were higher in the current quarter compared to the prior year primarily due to higher compensation, benefit and incentive expense, sales commissions, travel and marketing expense. Our research and development expenses were slightly higher this quarter compared to the same quarter last year due primarily to the emphasis on developing instruments for the food safety markets.}

This quarter was a record for the company for revenues. A large portion of the upside resulted from international shipments – which should have a major impact for a company this size. Furthermore, I believe the stock still has upside even though it is up over 30% over the past nine months. Not much has changed in terms of the risk / reward profile: the company operates within a profitable niche, enjoys healthy free cash flow, and has a very strong balance sheet.

About the author:

William J. DeRosa, Jr., CFA
William J. DeRosa, Jr. is the General Partner of Anthem Asset Management, LLC is an independent investment management company. He has also served as Director of Equity Research and Senior Portfolio Manager at various buy-side asset management firms. Mr. DeRosa is a Chartered Financial Analyst and is a member of The CFA Institute.

Rating: 4.2/5 (5 votes)

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