Q1 2013 Results Earnings Call

May 2, 2013 9:00 AM ET

Executives

John Cozzolino - Chief Financial Officer and Treasurer

Joe Morone - Chief Executive Officer

Analysts

Jason Ursaner - CJS Securities

John Franzreb - Sidoti & Company

Rick D'Auteuil - Columbia Management

Presentation

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the First Quarter Earnings Call of Albany International. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given to you at that time. At the request of Albany International, this conference call on Thursday, May 2, 2013, will be webcast and recorded.

I would now like to turn the conference over to the Chief Financial Officer and Treasurer, John Cozzolino for introductory comments. Please go ahead.

John Cozzolino

Thank you, Operator, and good morning, everyone. As a reminder for

I wrote about Xerium Technologies (XRM) as a potential long back on December 5, 2012 when the stock was trading at about $3. Since then XRM released its Q4 results, which were largely in line with what I projected in my write up, but more importantly, management projected a very optimistic picture for the environment for XRM's various paper machinery products. Refer back to my original article for more about XRM's business and my projections as they related to XRM's 2012 performance.

In the past week, XRM stock has exploded, moving up from roughly the mid $5s to over $8 on incredibly high volume. This was due to XRM providing preliminary Q1 2013 figures of $140MM in sales and $29MM in Adjusted EBITDA. In Q1 2012, sales were $134MM so this is a nice jump in top line. Further, XRM under its previous and current CEOs has undertaken an

Are you a value investor looking to add industrial companies to your 2013 portfolio? Would these stocks be more attractive if they paid a dividend? If so, we researched stocks that might interest you.

We researched industrial stocks that paid a dividend of at least 1% but not more than 5%. This allowed us to stay away from the high yield space.

Additionally, we looked for those industrial companies that appear undervalued relative to their cash flows, indicated by high ratios of levered free cash flow/enterprise value.

Levered free cash flow is the free cash flow after deducting interest payments on outstanding debt. Enterprise value is the sum of the firm's value from all ownership sources: market cap, outstanding debt, and preferred shares. When companies have ratios of levered free cash flow/enterprise value in excess of 10%, it may indicate that the company as a whole is being undervalued.

This

To the same degree that the ISM's PMI index (manufacturing) disappointed the markets, the NMI index (non-manufacturing) was positive news for the markets. The PMI continued its contraction for the third consecutive month with an additional drop of 0.2 to 49.6% which was on the low end of the narrow consensus range of 49.5-50.5% provided by Econoday. On the other hand, the NMI showed considerable strength with an expanding growth rate of 1.1 to 53.7% for the 32nd consecutive month of growth. According to Econoday, the NMI exceeded the consensus by 0.7 and above the consensus range of 51.5- 53.5%.

The broad strength in the non-manufacturing report was represented by increases in employment of 4.5 to 53.8%, reversing last month's contraction, back log of orders of 6 to 50.5%, new export orders of 1 to 52%, imports of 5 to just shy of 50

Looking for stocks with strong momentum with more potential upside to price in? We created a list with that sentiment in mind.

The 8 stocks listed below have met all of the following criteria:

- Rallying above their 20, 50, and 200 day moving averages.

The market has sent many stock prices soaring in the past couple months, so we wanted to make sure the stocks in our screen are, at the very least, taking part in this movement. Investors seem to think these names are worthy to ride the trend.

- Undervalued by EPS Trends:

Despite the rally, we wanted names that show potential to rise even higher and considered undervalued at current levels. We screened for stocks that may be undervalued, by comparing price trends to changes in EPS estimates over the last month.

Based on the assumption that P/E is equal to a constant k, increases in

In economic difficult times, it makes sense to scout for investment opportunities with robust business models and sustainable dividends. Despite the uncertainty, many companies have a good ongoing business operation and they are still confident about the economic future. That's the reason why they have raised dividends. Last week, 9 stocks and funds raised dividends of which 4 have a dividend growth of more than 10 percent. The average dividend growth amounts to 12.56 percent. However, I screened the recent dividend growth stocks by real bargains, measured by a forward P/E ratio of less than 15. These are the detailed results:

1. Triangle Capital (TCAP) has a market capitalization of $544.72 million. The company generates revenues of $63.36 million and has a net income of $56.77 million. The firm's earnings before interest, taxes, depreciation and amortization amounts to $41.31 million. Because of these figures, the EBITDA margin is

This new monthly series includes price information referenced in the previous sectors dividend yield comparison article, "Brazen Yield Gyrations of Dog Stocks in 8 Sectors."

This report was inspired when a Seeking Alpha reader requested "add[ed] relative financial data on the companies selected" for graphs comparing indices by annual yield projections. That request led to the development of a simple tool to chart investment risk. The tool gauges relative risk by revealing the divergence between annual projected dividends resulting from $10,000 invested as $1,000 each in the top ten highest yielding stocks in an index or sector versus the total prices of one share of each of the 10 stocks in that same index or sector.

A once per year trading system triggered by yield, the Dogs of the Index strategy is the basis for this article and the risk gauge. The dogs strategy popularized by

Investing is about earning a return, not about entertainment. You should not care about how intriguing a stock or a business is, but should find a stock attractive or repulsive based on its intrinsic value. This discipline is easier said than done, especially considering the following five textile and apparel stocks. Their industry is boring, but they all pay dividends and have grown their dividend payments over the past decade. The dividends they pay are modest and steady, like the underlying businesses themselves. Their valuations mediocre, and they have had modest to acceptible returns on equity over the past decade. In short, they are stable and borring—which is a good thing for your investments. These stocks are described below:

Lacrosse Footwear Inc. (BOOT) recently traded at $12.22 per share. At this price level, the stock has a 4.1% dividend yield. For 4 out of the past 10 fiscal years,

GW Capital was founded in 1989. The 100% employee-owned company manages several different funds, but follows a similar strategy for each – focus on identifying under-followed, under-owned and under-valued securities, while also exploiting market inefficiencies as they arise. Guy Watanabe founded the company. Today he leads GW Capital’s Investment Committee. Watanabe’s top 16 positions have done very well since the end of the third quarter. Of these top positions, only five underperformed the SPY’s 11.58% performance, while the top five topped 30%, going as high as 43.97%. All in all, Watanabe’s top 16 positions have returned 20.81% since the end of September.

If you’re looking for stocks paying dividend income that also have the potential for capital gains, you may find this article very interesting.

Using the Graham equation, a formula that calculates the maximum fair value for a stock based on two fundamental data points, we ran a screen on dividend stocks for those that appear undervalued.

The Graham Number only requires two data points: current earnings per share and current book value per share. 
The Graham Number = Square Root of (22.5) x (TTM Earnings per Share) x (MRQ Book Value per Share). 

This equation assumes that a stock is overvalued if P/E is over 15 or P/BV is over 1.5.

We used this equation to screen for potentially undervalued stocks among the universe of dividend stocks with strong operating cash flow coverage of the company’s dividend.

‪Interactive Chart: Press Play to compare changes in analyst ratings over the

A company’s cash flow is very important to consider when evaluating dividend stocks - after all, dividends are paid with cash. To rely on a company’s dividend yield, be sure their cash flows are reliable as well.

We ran a screen on dividend stocks with strong cash coverage, comparing the trailing-twelve-month operating cash flow per share to the dividend per share of the same time period. We searched these stocks for those appearing undervalued using the Graham number.

The Graham Number, created by the godfather of value investing Benjamin Graham, only requires two data points: current earnings per share and current book value per share.

The Graham Number = Square Root of (22.5) x (TTM Earnings per Share) x (MRQ Book Value per Share). This equation assumes that a stock is overvalued if P/E is over 15 or P/BV is over 1.5.

Interactive Chart: Press Play to compare changes in

By Douglas Ehrman

Daniel Loeb’s Third Point LLC, which has an estimated $2.3 billion under management, is considered a major institutional investor capable of moving markets. Within the investing community, Mr. Loeb is known for his outspoken disapproval of the conduct of other investment professionals and of his strong financial performance. For each of these reasons, his trades and opinions are carefully monitored and can, from time to time, provide some insight into developing trends in either the names he chooses, or the broader market in general. The fact that Mr. Loeb tends to be outspoken in many areas can be combined with his disclosure to form a reasonable opinion of his market stance overall.

Tesoro Corp. (TSO) – As of the end of the first quarter of 2011, Mr. Loeb initiated a position in TSO, bringing his holding size to 2.5 million shares at an estimated average purchase price

It seems that every investing article ends with the same conclusion - you should be buying dividend stocks. Beyond the simple concepts, some of the writers of these articles are making really bad recommendations and cross-breeding dividend investing with their preferred form of investing.

Dividend growth investing is not about exit points, momentum swings, relative strength, sector rotation; instead it is about studying fundamentals, selecting superior stocks and building a portfolio with a long-term horizon. When we buy a dividend stock, we hope to hold it forever.

This week several companies provided their shareholders positive feedback with increased cash dividends:

Lowe's Companies, Inc. (LOW) operates as a home improvement retailer in the United States, Canada, and Mexico. May 27th the company increased its quarterly dividend 27% $0.14 per share. The dividend is payable August 3, 2011, to shareholders of record as of July 20, 2011. Lowe’s

One important consideration to always keep in mind with investments is the accounting practices of a given firm. Because there is a lot of room for estimates in financial reporting, a firm’s management may use accounting tricks to appear more profitable than they actually are.

With that in mind, we wanted to screen the high-volume gainers on 5/9/11 for those that have conservative accounting practices. To gauge this we used the accounting and governance risk scores from forensic accounting firm Audit Integrity. Scores closer to 100 indicate conservative accounting risk.

We also created an equal weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.

(Click to enlarge)

Do you think these names have more upside potential? Use this list as a starting-off

It's often suggested that “volume precedes price”, and for that reason it's always helpful to look at the Money Flow Index (MFI), which is essentially a volume-weighted version of the popular Relative Strength indicator (RSI).

MFI is a more rigid indicator because it is volume-weighted, and is therefore a good measure of the strength of money flowing in and out of a stock. It compares "positive money flow" to "negative money flow" to create an indicator that can be compared to price in order to identify the strength or weakness of a trend.

It can be very useful to compare changes in the MFI indicator to the changes in a stock's price, since diverging patterns are often interpreted as trend reversals. All of the stocks mentioned below have seen prices decline over the last week, but the MFI(14) indicator has shown strong improvement--suggesting that these stocks are being accumulated at

The paper and paper products industry has numerous market segments ranging from facial tissue to the paperboard packaging segment. The paper and paper products industry provides some overlap with the container and packaging industry in that there are companies in both may produce paperboard. However, for the purpose of this article, we are only discussing producers of containerboard and corrugated containers.

The Paperboard Packaging Council has suggested that the packaging segment will continue to see weakness for the remainder of 2011 due to reduced consumer spending but that an uptick will occur in 2012-14. They also identify several end-use markets with growth potential: pharmaceuticals and frozen and take-out foods.

Tissue Industry

The U.S. tissue market is divided into two market segments: the at-home or consumer retail purchase segment, which represents approximately 67% of U.S. tissue sales; and the away-from-home segment (commercial and industrial venue tissue use), which represents the remainder

To say that December has been a good month would be an understatement. Of the 19 trading days so far, the S&P 500 is up in 16 of them for a total gain of 6.6%. Taking a broader look at the S&P 1500, which includes large cap, mid cap, and small cap stocks, the numbers have been just as impressive. The S&P 1500 has seen 15 up days out of 19 for a total gain of 6.7%.

With so many up days this month, one would think that