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.
- 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.