If you had told me I would be investing in a company that makes cardboard, manufactured in the U.S. and that also exports it to 3rd world countries I would have said you were insane. Until I found RKT...
Company Organization
Company Fundamentals
Earning Report Notes
Company and Industry specific commonly used acronyms and terms
Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.
ROCK TENN COMPANY (RKT)
Last Updated: Q3 2013
Fiscal Q4 2013
Description: Rock-Tenn Company (RockTenn) is a North America's integrated manufacturer of corrugated and consumer packaging. The Company operates locations in the United States, Canada, Mexico, Chile, Argentina, Puerto Rico and China. The Company operates in three segments: Corrugated Packaging, consisting of its containerboard mills and its corrugated converting operations; Consumer Packaging, consisting of its coated and uncoated paperboard mills, consumer packaging converting operations and merchandising display facilities, and Recycling, which consists of its recycled fiber brokerage and collection operations.
How do they make money: Selling paper based containers and packaging.
Key Brands: None
Company Organization
Corrugated Packaging
91 plants in U.S.
Export Containerboard
Industry shipments of containerboard to export
Consumer Packaging
Merchandising Display Business
Export 1m tons. 66% to Central and South America.
Plans and Strategy
Coal -> Natural Gas conversion. The company is converting plants from coal to natural gas. Improving costs (and improving pollution). Spent $33m over 2.5 years and now saving $47m annually over 5 projects.
Larger more Efficient plants. RKT bought Smurfit-Stone. Closed down 20 total plants with a net loss of 8 plants.
Free cash flow: RKT makes a ton of free cash flow, far higher their their EPS due to depreciation and other accounting rules.
They want debt/ebitda to be below x2. End of 2013 it is x1.95
Share buybacks are important and have launched a 5m buyback plan (7% of the company). No timeline as to when it will be complete.
Dividend yield is targeted to S&P mid cap 400 index average. Odd that they would try to target yield vs a $ amount paid.
Fiscal 2014 free cash flow will be 12%-21% higher.
Risks
Pension: Rock Tenn has a pension plan. I am not opposed to a company pension but it does put pressure on management to properly fund it.
Mitigation: Last year the pension was underfunded by $1.5b. This year its only underfunded by $1b. Improvement was from increased discount rates and contributions. Will make $200m - $255m contributions until 2017. Then be fully funded and drop to $130m annually.
Manufacturing and Heavy Machinery: Packaging requires expensive mills that will need repair and maintenance. Manufacturing jobs in the U.S. will be hard to compete vs overseas.
Mitigation: RKT seems to control their inventory and production capacity well to be able to shut down plants for repairs without impacting company wide volume. They have projects to convert coal to nat gas burning as well as upgrading to modern tech (Mitsubishi flexo folder gluers) not because things break down and they try to get every last day of life from their plants but because of efficiency and cost savings. Their margins and productivity are rising.
Competitors
International Paper Company (IP)
Packaging Corp of America (PKG)
Company Fundamentals
Company Stats
|
2004
|
2005
|
2006
|
2007
|
2008
|
2009
|
2010
|
2011
|
2012
|
2013e
|
5y Avg
|
10y Avg
|
Share Price
|
$13.87
|
$13.98
|
$26.50
|
$32.72
|
$31.17
|
$42.69
|
$66.75
|
$61.86
|
$78.95
|
$96.20
|
$69.29
|
$46.47
|
EPS
|
0.88
|
0.45
|
0.75
|
2.16
|
2.83
|
6.15
|
5.24
|
5.41
|
4.54
|
7.09
|
5.686
|
3.55
|
EPS Growth
|
-
|
-48.86%
|
66.67%
|
188.00%
|
31.02%
|
117.31%
|
-14.80%
|
3.24%
|
-16.08%
|
56.17%
|
29.17%
|
42.52%
|
P/E
|
15.76
|
31.07
|
35.33
|
15.15
|
11.01
|
6.94
|
12.74
|
11.43
|
17.39
|
13.57
|
12.41
|
17.04
|
P/B
|
1.2
|
1.1
|
2
|
1.6
|
2.1
|
2.3
|
2
|
1.2
|
1.4
|
1.6
|
1.7
|
1.65
|
EPS can be sporadic and drop but the overall average is strong growth.
Current P/E is 9.67 vs twice that for its 10 year average gives strong margin of safety.
Dividend Stats
|
2004
|
2005
|
2006
|
2007
|
2008
|
2009
|
2010
|
2011
|
2012
|
2013e
|
5y Avg
|
10y Avg
|
Dividend
|
$0.35
|
$0.36
|
$0.36
|
$0.40
|
$0.40
|
$0.45
|
$0.65
|
$0.80
|
$0.83
|
$1.18
|
$0.78
|
$0.58
|
Dividend Yield
|
2.52%
|
2.58%
|
1.36%
|
1.22%
|
1.28%
|
1.05%
|
0.97%
|
1.29%
|
1.05%
|
1.23%
|
1.12%
|
1.46%
|
Share buyback %
|
-
|
-2.78%
|
-2.70%
|
-5.13%
|
2.63%
|
-2.56%
|
0.00%
|
-23.56%
|
-29.17%
|
-1.37%
|
-11.33%
|
-7.18%
|
Div Growth
|
-
|
2.86%
|
0.00%
|
11.11%
|
0.00%
|
12.50%
|
44.44%
|
23.08%
|
3.75%
|
42.17%
|
25.19%
|
15.55%
|
EPS Payout Ratio
|
39.77%
|
80.00%
|
48.00%
|
18.52%
|
14.13%
|
-
|
12.40%
|
14.79%
|
18.28%
|
16.64%
|
15.53%
|
29.17%
|
They shifted one of their 2013 dividend payments to 2012 probably to avoid any possible tax increase. The numbers above have been adjusted to match if that did not take place for a more historic trend.
Share count has been increasing but they have been growing the company by a larger amount.
They yield does not traditionally get high however the dividend growth rate is very high.
Earning Report Notes
Q3 2013 (F4 2013)
EPS $2.66 (+91% Y/Y) Higher pricing and higher productivity
Free Cash Flow: $3.78 (higher than EPS)
Margins: Corrugated 20%
Tax Rate: 30%
Debt: $1.48b (reduced by $176m in Q)
Debt/EBITDA: x1.95. Target is below x2 and they have been working on that since acquisitions completed.
Prices: $50 - $54 / ton of containerboard
Pension payments and reducing debt.
Dropped productivity in Q to control inventory. Most of it was in September where they did improvements (repairs?)
2014 Estimates
$525m - $550m Capex
Pension: $1b underfunded. ($1.5b last year). Will make $239m in contributions. $200m - $255m contributions until 2017. Then be fully funded and drop to $130m.
Free cash flow estimate $12.50 - $13.50 / share (+12% to +21%)
Company and Industry specific commonly used acronyms and terms
Boxboard: Pulp based packaging with layers of chemicals (smoothed coating?).
Containerboard: Cardboard but without the “W” accordion shaped center.
Corrugated: Traditional cardboard. Packaging with the “W” accordion shaped center.
Resources
Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.
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