3 Well Run 'Mini-Conglomerates' With Strong Balance Sheets

Includes: JJSF, LANC, NPK
by: Finance For Yuppies

The companies below all have diverse product lines and operate as "mini-conglomerates". Each firm has virtually no debt, a substantial cash balance, solid management, and a history of being a serial acquirer.

National Presto (NYSE:NPK)

· Cash as a percentage of market cap - 18.5%

· Dividend - 1.30% + Annual special dividends

· NTM Forward PE - 12.2X

National Presto Industries is a conglomerate that operates three primary business segments. Approximately 30% of the company's sales (2012) are derived from the sale of cookware including waffle makers, skillets, deep fryers, and multi-cookers. This division's revenue has flat lined since its peak in 2009 and its profits have halved from $30m to $15m in 2012. The company's largest division (52% of 2012 revenues) is its Amtech Corporation defense unit and Spectra Technologies subsidiary, which it acquired in 2001. This division produces a number of training ammunition, fuses, and initiators, but its primary contract is for the provision of 40mm ammunition. The company's smallest (17.45%) and lowest margin (3.52%) division produces absorbent products including adult diapers and pads for pets.

Catalyst - Defense contracts larger than anticipated

According to National Presto's 2012 10-K, the company currently has a production backlog on its munitions contract with the Defense Department that provides ample room for future growth. In 2013, according to the Tampa Bay Business Journal, Presto has been awarded the entirety of a 40-millimeter munitions contract with the Department of Defense. It had previously been awarded half of the $64.5m contract. In response to an eventual wind down of America's wars, the company purchased ALS Technologies, a non-lethal weapons manufacturer. The company can produce non-lethal weapons that have both military and police uses. As a result, the company will theoretically be less dependent upon the Defense Department than has been in the last 5 years.

J&J Snack Foods Corp. (NASDAQ:JJSF)

· Cash as a percentage of market cap - 12.90%

· Dividend - .80%

· NTM Forward PE - 22x

JJSF is a producer of branded and private label foods. The company's flagship products are the well-known Super Pretzel and Icee brands. In addition, JJSF sells dough enrobed products, churros, baked goods, and cookies. The majority of the company's revenues and profits are derived from sales to food service companies.

Catalyst - Acquisitions

The company has been a successful serial acquirer, recently purchasing Conagra Foods handheld food division, Kim and Scotts Gourmet Pretzels, and California Churro. At present, JJSF has approximately $188 million on its balance sheet. Given management's history of successful acquisitions, there is a strong possibility that the company will deploy this cash to make an accretive acquisition. At 22x earnings the company is more expensive than the other companies listed here, but warrants a higher multiple due to its proven ability to grow the bottom line by 7% a year over the last 5 years, strong management, and the value orientation of its product offerings.

Lancaster Colony Corp. (NASDAQ:LANC)

· Cash as a percentage of market cap - 4.44%

· Dividend - 1.95%

· NTM Forward PE - 19.19X

The Lancaster Colony Corporation manufacturers food products, candles, and glassware for distribution through retail and food service markets. Approximately 88.4% of the firm's revenues in Q1 and virtually all of the company's profits are derived from its food products division. The division sells several brand name products including salad dressings, yogurt dips, and egg noodles among other products. The remaining 11.6% of the firm's revenues are derived from the sales of glassware and candles under the Candle-lite brand name.

Catalyst- Increased dividends

The company has stable capital requirements and wise cash allocation policies. Lancaster generates approximately $100-$107m in free cash flow a year implying a free cash flow yield of approximately 4.6%-4.9%. Not counting the company's recent special dividend to take advantage of lower tax rates, the company has raised its dividend consistently over the last 5 years by a 4.9% compound annual growth rate. Management has therefore demonstrated both the ability and the willingness to return cash to shareholders, while still retaining sufficient earnings to fund an 18.36% net income growth rate over the last 5 years (2012). Given the non-cyclical nature of the food sector and its position in mid-high end brands, the company should continue to be a cash flow generating dynamo.

Disclosure: I am long JJSF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.