All Packaging, No Present?
Graham Packaging, which manufactures plastic containers for consumer products, is set to become publicly-traded under the symbol GRM (read the SEC filing here). Graham sells about $2.2 billion worth of containers to a who’s who of CPG companies with PepsiCo its largest customer (11% of sales).
Reviewing the financials, the company has been spruced up for its IPO with traditional techniques like writing down asset values (reduces depreciation expense) and lowering capital expenditures (makes the business appear less capital-intensive). The IPO provides a nice payday to the private equity owners (paid for by investors in the IPO) as evidenced by this disclosure in the SEC filing:
“The remaining proceeds will be used to make a one-time monitoring fee payment of $26.3 million to Blackstone and $8.8 million to the Graham Family in connection with the termination of our Monitoring Agreement”
The Blackstone Group acquired the company in 1998, so the investment is a little long in the tooth for private equity companies as the modus operandi is to be in and out of an investment in 5 years. Post-IPO, the company will look the same as before, shouldering a heavy debt load, facing minimal growth prospects and still controlled by an entity with a history of paying itself exorbitantly. The company is trying to sell shares to the public at 12.5x earnings. Pass. Source: Company Filings.
Good News for Retailer & Vendor 401(k) Plan Participants
As has been widely reported, Wal-Mart‘s 401(k) plan has been under fire. Lawyers have been busy pursuing other big profit-sharing plans as well. Kraft was in the crosshairs, but a Federal Judge just threw out the case because the company had taken steps to lower expenses of its investment options. The bottom line is that the increased scrutiny is forcing companies to add low-cost investment options to the menu. Winners: plan participants. Losers: brokerage firms, mutual funds. The seemingly small annual savings of only ¼ to ½ percent in your mutual fund costs adds up to thousands of dollars at retirement. Source: Planadviser.com
ECON 101
Ironic, isn’t it? Foreclosure.com, a real estate site tracking the housing market, filed for bankruptcy in West Palm Beach, listing $9.1 million in assets and $27.5 million in debts. Source: Courthouse News Service
Don’t bring this to Starbucks and broadcast your reading preferences but the latest issue of the Coin Laundry/Dry Cleaning Journal relays that the consumer is still reeling, noting that many are laundering less frequently and over-loading their washers/dryers to squeeze more out of each dollar. Traffic is generally down 5-10% at Laundromats, long considered one of the most recession-resistant businesses. Laundromat owners are nervous that college students’ use of P&G’s Swash & Go instant clothes refresher may hurt business.
Just Walk Away. A worthy podcast shows shifting consumer attitudes of the middle class from “save my house at any cost” to “get me out with the least loss.” Source: NPR Planet Money
Haggle. Washington Post has an insightful article on how major companies are caving in to consumers haggling for lower prices.
Merger Mania
On the heels of the Kraft/Cadbury deal (read our analysis here), trading in options of Heinz have been active. Speculation is that it’s Nestle’s turn to buy a company. Source: BusinessWeek
Around The Horn
Quarterly earnings are upon us. Multi-Color Corporation (Nasdaq: LABL) (mfr of pressure sensitive labels for CPG companies) sums up nicely what is happening for most CPG companies. In the fourth quarter, LABL saw 4% drop in sales ( ½ from volume ½ from pricing) offset somewhat with headcount reductions and spending cutbacks. Our view: 2010 doesn’t look great, but the worst may be behind us. Source: company reports
Kudos to Hanesbrands
Footnoted.org gave a gold star on Hanesbrands, Inc. (HBI), for supplying humanitarian aid to contract workers and relief agencies in Haiti. Hanesbrands, Inc. has donated $2.2 million worth of underwear (at wholesale value) to aid agencies for distribution to earthquake victims. It is also providing food, water, and relief supplies to its Haitian workers.
MENTAL GYMNASTICS
History and Geography buffs and those on International assignments will love this resource – it’s an excellent source of eclectic historical maps.
Say it Ain’t So
New technology proves that men understate how much “soft rock” they listen to (Manilow, Cher and Celine Dion) in the car radio. Read the full article here. Source: Book of Odds
Secret Passages
Ever wanted a secret passageway in your house? Here’s a company that designs and installs hidden passages for homeowners. Check out the chair slide passage way (Video Clip #1), so cool. http://hiddenpassageway.com/
Check Please!
How to spend $47,000 at lunch on your next trip to New York? We’re guessing that this expense report might get some scrutiny from the folks in the reimbursement department. View the receipt here. Source: Seriouseats.com
Scott's Top-5 Names of Fishing Flies
Those of you that know me are aware of my fly-fishing affliction. One thing I’ve noticed is that fly-tiers are deceptively good marketers. Rather than slap “new and improved” or “ultra” on their latest incarnation they dream up memorable, descriptive product names (that are eerily similar to names of professional wrestlers and names of exotic drinks I might add). Here’s a few of my favorites:
- Mr. T
- Mullet Slider
- Eggi Wan Kenobi
- Minister’s Dog
- Mizzolian Spook
Source: Blue Ribbon Flies; Cabelas.com
Last Word
“Try not to confuse confidence with delusion.”
-- Seth Godin, Random Rules for Ideas Worth Spreading
Have a thought or comment? Give us a call or email.
Scott Alaniz, CFA
Joe Chumbler, CFA
Information in this report has been obtained from sources that we believe to be reliable. Boston Mountain Money Management does not guarantee its accuracy or completeness and assumes no responsibility for actions taken with respect to information contained herein. The authors held a position in Procter and Gamble and Wal-Mart Stores at the time of this newsletter.
