Consumer goods companies are facing challenges to garner profitable growth out of challenging economic environments worldwide. These companies are facing heaps of issues, though some are benefiting from recent technology advancement and consumer trends shifts. With a recent increase in consumer spending, the industry is on the brink of revival.
Three companies from the consumer goods industries are analyzed below in terms of EPS, Dividend yields and past performances. The selected companies have a positive past five-year EPS growth and a dividend yield of over 4%.
Source: Google Finance 4/8/2013
The Two to Buy:
Orchids Paper Products (TIS) manufactures tissue products for the home tissue market. The company is in the business of producing bulk tissue paper, known as parent rolls. It converts parent rolls into finished products, including paper towels, bathroom tissue and paper napkins. The company sells its product under the label and brand names such as Colortex, My Size, Velvet, Big Mopper, Soft & Fluffy, Tackle, Nobel and Care.
For the 2012 fiscal year, net sales for Orchid came in at $100.8 million, an increase of $3.0 million or 3%. For the first time in its history, the company has achieved more than $100 million in net sales. For the last quarter, net sales declined 6% to $24.0 million, against $25.7 million in the corresponding period of 2011. The company recorded full-year net income at $9.3 million, an increase $3.1 million, or 49% compared to $6.2 million in 2011.
The dividend yield of the company is 4.7% with a payout ratio of 80%. Orchid has a higher-dividend yield compared with its peers such as Cascades (CASC), which has a dividend yield of 3.9% on a payout ratio of 80%, and Kleenex tissue, own by Kimberly-Clark (KMB), which has a dividend yield of 3.5%. Orchid increased its dividend by 2.5 times since it paid its first dividend in the 2011 fiscal year. The company's record of increasing dividends is quite impressive, as it doubled its quarterly dividend in November and increased again by 25%, from $0.20 per share to $0.25 per share.
Orchid was included in the Forbes list of 100 best small companies of America due to its strong earnings performance, sales growth and return on equity over the past 12 months and over five years in comparison with its competitors. The earnings per share of the company increased at an average annual rate of 48.4%. The debt-to-equity ratio of the company is 22%.
Altria Group (MO) There have been two different companies created by spinning off of Altria Group in 2007 and 2008. After becoming an independent company, Kraft Foods (KFT) returned 21% to shareholders and Phillip Morris (PM), the other spin-off, realized capital gains of 72%. Altria, the parent company, also outperformed the S&P 500 by 60%.
For the fourth quarter of 2012, the company's net earnings came in at $1.10 billion or $0.55 per share, an increase from $836 million or $0.41 per share in the corresponding period a year ago. The net revenues for the quarter increased to $6.24 billion from $6.13 billion (up 2%) in the same period last year. The higher revenues were mainly caused by increased revenues from smokeable products. For the full fiscal 2012, net earnings came in at $4.18 billion, or $2.06 per share, from $3.39 billion or $1.64 per share in the previous year. Net revenues for the year grew 3% to $24.62 billion from $23.80 billion last year.
Altria pays a major portion of its profits to shareholders. The company pays out about 80% to 90% of EPS, which is quite high; moreover, the average annual EPS increased 10.2% over the last four years. The EPS per share was $1.54 in 2009 and escalated to $2.06 in 2012. The company's dividend increased from $1.32 in 2009 to $1.70 in 2012, an average increase of 8.8% a year. The company has hiked its dividend 45 times in the past 43 years, And Altria's board has given approval of another 7.9% increase in dividend. Despite the increases in dividends and share buybacks, the company has maintained a strong balance sheet by focusing on diversifying its business and expanding its footprint in new markets, such as smokeless products, cigars, wines and financial services
The One to Sell:
Pitney Bowes (PBI) provides software, hardware and services to enable physical and digital communications in the United States and abroad. The company offers a portfolio of equipment, supplies, software, services and solutions for managing and integrating physical and digital communication channels
PBI's revenues have been declining year-over-year since 2008, from $6.07 million to $4.90 million - a 19.2% drop. The company has recorded lows in all seven segments it operates. In 2011, only one segment of the total seven increased. PBI's costs, on the other hand, have escalated from 48% of revenue to 50% over the last three years.
The company has increased its EPS, but has done so through share buybacks amidst rising cost and declining revenues. EPS increment has not come due to organic growth. The calculated five-year EPS growth rate is 5%.
The overall long-term price trend of PBI has been negative since early 2011, and the price to free cash flow ratio of the company is 30.49%. PBI is reeling under intense debt load with a debt-to-equity ratio of 29.53.
Of all three companies analyzed, Altria seems to be the most stable and most poised towards growth. Orchid Paper Products has also done well, but in terms of EPS and market cap, Altria outperforms Orchid. PBI, though a dividend aristocrat, is suffering too much from declining revenue and incomes.
Additional disclosure: Black Coral Research is not a registered investment advisor or broker/dealer. Readers are advised that the material contained herein should be used solely for informational purposes. Investing involves risk, including the loss of principal. Readers are solely responsible for their own investment decisions.