Global industrial manufacturers are ruling this quarter. While the big companies get most of the credit, you need to tip your caps to the medium-sized industrials too.
One of my favorites for the past five months for its low cost and high operating leverage has been packaging maker Crown Holdings (NYSE:CCK). Here’s some news, courtesy of the research analysts at Gimme Credit. Near the end of this excerpt you will see the role that cheap debt plays in a company like this:
”Crown reported a strong first quarter last week despite pricing compression in some markets. But its chief executive says volume demand is strong worldwide and despite potential competitive pricing issues this year in Europe, its margins in most of its markets worldwide will be stable.
”The company has benefited from the global economic recovery as well as from recent expansion into emerging markets. It generates robust free cash flow and even though it has been using free cash for share repurchases and capex instead of reducing debt, leverage remains low. Management said that even if all its projected free cash flow were used for share repurchases this year rather than debt reduction, net leverage would decline to 2.3x from 2.6x at the end of 2010.
”Crown has been expanding its metal can business particularly in South America and Southeast Asia. New production capacity in Brazil added to revenue in the quarter. Earlier this year Crown announced plans to expand beverage can capacity at three existing facilities in Vietnam, which will increase capacity there about 45% by mid 2012. Management expects revenues from Asia to grow to $900 million by 2012. But expansion comes at a cost, as Crown will spend $425 million this year in capex (compared to capex of $320 million last year when the new capacity addition in Brazil exceeded $120 million and only $180 million of capex in 2009).
”Crown does not rule out small acquisitions that could also be a use of free cash. Nevertheless, its growth initiatives combined with improving economies could add near $100 million in earnings before interest, taxes, depreciation and amortization this year. And management affirmed 2011 free cash flow guidance of at least $400 million.
”The company’s first quarter registered a 6% year over year increase in global beverage can volume in part because of the new capacity coming on line in emerging markets. Higher volumes contributed to a sales increase to $1.88 billion from $1.77 billion a year ago.
”Crown issued $700 million of bonds due in 2021 in the quarter and used most of the proceeds to redeem notes due in 2015, improving its maturity profile. Debt maturities due this year and next are about $480 million, easily manageable given Crown’s robust free cash flow. Analysts forecast 2011 free cash flow (EBITDA less interest expense, capex and asbestos and pension contributions) at about $430 million in line with management estimates. Given its plans for share repurchases, however, don’t expect major debt reduction. ”
Bottom line: CCK is a typical mid-cap global industrial, with a market cap of $5.8 billion, projected earnings growth of 18.8% and a forward price/earnings multiple of just 11.5. In short, it’s growing and it’s cheap. That’s all you can ever ask for. It’s a buy.
For more guidance like this, check out Markman’s daily trading service, Trader’s Advantage, or his long-term investment service, Strategic Advantage
