New Outlook and New Accents at Multicolor

| About: Multi-Color Corporation (LABL)
Multicolor (NASDAQ:LABL) is a small cap provider of label solutions to many of the largest consumer companies in the world. The company was founded in 1916 and is headquartered in Batavia, Ohio, near Cincinnati. Its largest customers include Procter & Gamble (18% of revenues) and Miller Beer (10% of revenues). From 2001-6 Multicolor was an outstanding performer with revenues increasing over 204%, earnings increasing by 159% and cash flow increasing by 212%. This great performance was reflected in its stock price which rose from a low of $2.37 to a an all time high of $29.61 in 2007. This performance was significantly better than that of its largest customer P&G. New products and new customers were key drivers over that time period. The company had a number of proprietary mold products including in mold labels some of which had patent protection.
Since 2006 Multicolor has encountered a number of problems including significant manufacturing issues at some of its plants and the large decline in product markets accompanying the recession. Earnings declined from a peak of $1.31 in 2007 to 0.98 in 2009. The stock price was hammered dropping over 65% to under $10 last year. It currently is trading about $12.80.
The company also made a large acquisition in February 2008 buying the Australian company Collotype which made it a significant player in the wine labeling business. Made near the top of the market, some have felt that Multicolor overpaid for Collotype and it likely could have gotten the company at a lower price a year later. The Collotype acquisition did serve the expressed purpose of diversifying Muticolor’s customer and business base. During 2010, 2009 and 2008, sales to major customers (those with 10% or more of the Company’s net revenues) approximated 28%, 32% and 51%, respectively of the Company’s consolidated net revenues.
Muticolor added to its wine labeling business in June 2010 with the acquisition of the Italian company Guidotti CentroStampo acquired for 50.5 million Euro.
Multicolor reported earnings this week with an upbeat note and with some new accents on the conference call. The new CEO Nigel Vinecombe and CFO Sharon Birkett have roots with Collotype. Vinecombe replaced long time CEO Frank Gerace in June 2010. Birkett became CFO in July 2010.
Financial results for the quarter were positive with net revenues up 6% and gross profit 16%vs. same quarter last year. Excluding the impact of the special charges from both periods, adjusted operating income increased 20% to $8.4 million from $7 million due primarily to the increase in sales volume and improved operating efficiencies. Orders from P&G were up again confirming the trend of recent quarters.
Management commentary was cautiously optimistic:
"Our June quarter has shown encouraging signs in revenue and underlying profit growth," stated Nigel Vinecombe, President and CEO of Multi-Color Corporation. "While we remain cautious about brand volumes, we continue to develop new business and productivity gains to drive profit improvement."
I hold small positions in Muticolor in my individual accounts and some accounts managed for my clients at Freedom Mountain Investments. I added some shares this week. The company looks like reasonable value at the current price and should do well given further economic recovery. The shares trade at about 1.1 times book value, at about 10.3 x expected 2011 earnings of $1.24/share and at about 6.3x CF. The balance sheet is reasonably solid with LT debt decreasing in the last 2-3 years. Insider ownership stands at a respectable 14%. Current dividend is around 1.6% adequately covered by cash flows. I like the companies decreased customer concentration and its new international exposure. The manufacturing issues seem to have been resolved. On the downside there seems to be increased competition in some of its business lines and some patents have expired. I would like to see the net profit margin return to the 5%+ area.
Disclosure: I own shares in Muticolor (LABL) in individual and accounts managed for Freedom Mountain Investments.

Disclosure: I own shares in Muticolor (LABL) in individual and accounts managed for Freedom Mountain Investments.

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