Cascade Corp. May Be On Sale

| About: Cascade Corporation (CASC-OLD)

Cascade Corp. (NYSE:CAE) can give you a lift. The company's two principal product lines -- Cascade attachment products and Cascade-Kenhar fork products -- are manufactured for the lift truck industry. Cascade's product line includes forklift attachments, forks, hydraulic cylinders, and replacement parts that help pull, rotate, tilt, side shift, clamp, and lift appliances, paper rolls, and other types of loads. Its products are sold to OEMs and equipment dealers, primarily in North America (accounting for 55% of sales), but the company has operations worldwide. Sales to OEMs make up about 40% of total revenues.

The stock recently hit an all-time high of $89 share. Then an analyst at Rodman & Renshaw, a brokerage firm, downgraded the stock from Market Perform to Market Underperform. The stock went down a few points. But then the turmoil of a market that's been down over 200 points in a few days swept this stock with it, taking CAE to $66 a share before it started to recover. Is this a buying opportunity? Let's see.

Cascade owns 80% of the North American forklift market. It depends on a strong American economy for profits. There isn't much room left to grow market share nor can price hikes be implemented as orders have started to slow, at least in the forklift business. Some of that slowdown has been compensated for by heavy truck business, but it's not enough. Forklifts are what makes or breaks this company.

In the first quarter of the fiscal year (began on February 1), sales were 15% higher than the same quarter last year, up to $135.5 million. The bulk of the increase in business came from orders out of China, Asia/Pacific and Europe. Its expansion into China has contributed to revenues as well as the bottom line as production costs are lower. Decreased prices for raw materials and sourced components also help. In Europe, higher volume and increased manufacturing efficiencies are improving profitability.

Earnings have been the usual source for the stock's run up, going from a low of $8.40 in 2001 to a recent high of $89. Earnings were $1.07 in the first quarter on an operating basis, up 27% from the same quarter last year. Analysts are looking for $4.30 this year and $4.75 next year. The company bought PSM Corp. in December of last year, and that addition accounted for much of the increased revenue and profits in the first quarter.

Another acquisition, American Compaction Equipment, Inc., was recently completed. It manufactures construction attachments and is based in California (CAE is in Oregon). The addition expands CAE into the construction-attachment business, a natural for its PSM sub. The deal should be accretive this year and add about $10 million to the top line.

One interesting aspect of the company is its ownership. Officers and directors have almost 20% of the stock. Fidelity, the large mutual fund, owns 10.6%. Three other large institutions control 20.5% while the Robert J. Davis Family has 5.8% (all numbers from the 4/07 proxy). Altogether these 6 entities control about 57% of the stock. There are only 11.832 million shares outstanding.

Other numbers: Current assets are 2.5 times current liabilities. Net profit margin is 9.5% with analysts predicting 10% next year. Sales should ramp at at 7.5% increase, on average over the next 5 years while earnings should improve by 11.5% a year, on average in the same time period. Revenues were $478.5 million last year. Earnings were $3.48. There's a small dividend of 18 cents a share per quarter which was raised 12.5% from 16 cents recently. The board bought back $24.5 million worth of stock in the April quarter of this year, bringing total value of shares repurchased to $61 million. There is authorization to buy another $19 million worth.

Cascade had a strong run up this year, starting at $51.30 and then to $89. Now it's back to a more reasonable valuation. You'd look more closely at this small-cap stock if you thought the economy is going to improve from here, that the housing market is starting to stabilize, and that the global economy will continue to expand. Cascade participates in the early stages of any economic boom as well as growing economies.

Disclosure: none

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