Lifetime Brands Inc. (LCUT, Financial) owns and markets a bevy of brands that serve the home goods sector. With the company’s acquisition of 167-year-old Filament Brands, it can now compete with Bed Bath and Beyond (BBBY, Financial) without inventory loss. That’s only slightly tongue in cheek as the combined company is expect to generate $770 million in annual revenue with north of $90 million in EBITDA across dozens of product lines.
Lifetime's brands include household names like Mikasa, Pfaltzgraff, Farberware, KitchenAid and Cuisinart. With the addition of Rabbit, Chef’n and Taylor, it has taken steps to ensure survival and growth. If successful, the new Lifetime Brands will look to produce at least three times more in net income, possibly much more if some overlapping costs can be phased out. That could equate to $15 million to $20 million in after-tax profits next year.
Something I like about Lifetime Brands is the Siegel family owns over 10% of the outstanding shares, with Jeffrey Siegel as the chairman and his son, Daniel, running the company as president.
This is a story stock
The company was founded in 1945 by Milton Cohen, Chester Phillips (father of board member and former executive Craig Phillips) and Sam Siegel (the father of the current CEO). In the 1980s, after Sam Siegel died, Cohen, Jeff Siegel and Phillips took the company private through a leveraged buyout.
Then the acquisition fun began
In the 1990s, Lifetime acquired two of its biggest sellers - Farberware and Hoffritz - and in 2001, the license to market utensils under the KitchenAid brand was secured. As competition increased, the company expanded internationally, acquiring U.K.-based Kitchen Craft and La Cafetiere in 2010 as well as strengthening its U.S. base by purchasing Built NY, a marketer of designer neoprene products such as totes, lunch bags and baby products. The acquisition spree continued with the purchase of Wilton Armetale, the Amco, Chicago Metallic and Swing-A-Way brands, as well as the Copco brand over the last few years alone.
Growth by acquisition isn’t always the best path to success, especially since not every manager is as good at analysis as Warren Buffett (Trades, Portfolio). History is filled with poorly executed acquisitions; however, it appears Lifetime Brands is looking to build itself into a major competitor in the housewares space.
In fact, just last year, the company rejected a $20 acquisition bid from Mill Road Capital, which is the company's second-largest shareholder behind Wellington Management. Another takeover bid could happen this year, especially with the stock down 30%. The acquisition of Filament, however, may help the company insulate itself from future takeover bids. Filament adds 30% to Lifetime’s top line and its shareholders, led by Centre Partners, will own 27% of the new entity. All this says one thing - Lifetime Brands is a valuable asset.
There are obvious risks
The majority of its revenue comes from its top 10 customers, with over a quarter from Walmart (WMT, Financial) and Costco (COST, Financial). Products using licensed brands were 40% of sales in 2016, including the KitchenAid brand from Whirlpool (WHR, Financial), so the risk of a licensing agreement not being renewed could hold significant weight. These licenses also weigh on net profit.
Finally, while the Siegel family owns a significant portion of the company, it also takes a significant portion of the sales in the form of a salary. The five key executives collectively earned over $7.7 million, three times more than Lifetime’s profit, in the last 12 months. In addition, there is a $16 million golden parachute for the chief financial officer and chief operating officer if the company has a “change of control” event, which is triggered by an acquisition or merger, if an outside investor acquires 20% of outstanding shares or if a majority of the incumbent board is replaced in a proxy fight. At the current price, this represents close to 7% on a per-share basis.
If you can live with that, I think the stock is worth a look.
Disclosure: I have no positions in any of the stocks mentioned in this article.
