Cascade Corp.: Getting Lifted, Higher And Higher

Cascade Corp.: Getting Lifted, Higher And Higher
 

Price:$57.44

Forward P/E:10.4

Earnings Growth:116%

Projected Sales Growth:31%

Market Cap:$636 million

Why It's Featured: Jump in revenues and earnings; margins widening.
Danger Zones: Flat earnings for next year; European woes; valuation.

Cascade Corporation, (CASC-NASDAQ) together with its subsidiaries, engages in the manufacture and distribution of materials handling load engagement devices and related replacement parts primarily for the lift truck and to construction industries worldwide.

It offers lift truck related products that are designed to handle loads with pallets and for specialized application loads without pallets.  The company's specialized products include devices designed to handle loads, such as appliances, carpet and paper rolls, baled materials, textiles, beverage containers, drums, canned goods, bricks, masonry blocks, lumber, plywood, and boxed, packaged, and containerized products.

Its lift truck related products provide the lift truck with the capability of engaging, lifting, repositioning, carrying, and depositing various types of loads and products.  Construction related products allow vehicles, such as loaders, backhoes, and rough terrain lift trucks to move materials in much the same manner as conventional lift trucks, and are used on excavators and loaders for conventional and specialized ground engagement applications.

The company sells primarily under the Cascade name to the end-users through the retail lift truck dealer distribution channel; lift truck manufacturers as original equipment manufacturer (OEM) equipment; and lift truck original equipment dealers.  It serves pulp and paper, grocery products, textiles, recycling, and general consumer goods industries, as well as OEMs of construction, mining, agricultural, and industrial vehicles. The company was founded in 1943 and is headquartered in Fairview, Oregon.

Thought still small (market cap of $635.82 million), CASC is one of the world's leading manufacturers of materials-handling, load-engagement devices and related replacement parts.  The stock moved up rapidly in the last week and has been on an upward trend since last October when it traded at $31.30.  Can it go still higher?

Third quarter results give us a good clue (fiscal year ends January 31).  Sales were up 28% in the period to $138 million with higher global lift truck sales in every operating region.  With solid demand, price hikes went into effect and stuck.  Europe remained a bright spot, and for the third consecutive quarter showed a profit. 

Margins improved because prices were higher, cost cutting initiated earlier in the year began to take effect, and better fixed-cost leverage.  They were hampered by higher raw materials costs.  But in total, they widened.

As for earnings, they more than doubled to $1.74 compared to 79 cents in 2010's third period.  Analysts forecasted $1.20.  Actual EPS beat that by 45%.  In the first quarter, results bested analysts' expectations by 78% ($1.46 vs expected 82 cents).

For the fourth quarter, consensus from 4 analysts is for $1.09 compared to 65 cents in the year prior's fourth.  For the full year, they see $5.51 vs $2.24 in 2010.  For 2012, they're expecting $5.51 again, so no growth in earnings is forecast currently.  Europe is still a big question (and a big market).  While Germany and France continue to show decent strength, the rest of the EU with Greece most notable are on shaky ground.  Analysts will lift their estimates if the European economies show some debt resolution and positive traction.

Along with better earnings, the company improved the dividend, boosting it to $1.00 after hiking the payment twice last year.  That compares to an 18 cent pay out in 2010.  For more uses of its healthier cash flow, management has also stated it's on the lookout for acquisitions to help growth.

- Essential numbers:
- Price to sales ratio: 1.22
- Price to book value: 2.14
- Operating margin: 15.36%
- Profit margin: 10.3%
- Return on equity: 19.85%
- Return on assets: 12.94%
- Total cash: $19.8 million
- Cash per share: $1.79
- Total debt: $22.73 million
- Total debt to equity: 7.65%
- Current ratio: 3.67
- Book value per share: $26.83
- Beta: 2.25
- 52 week change: 17.3%
- Shares outstanding: 11.08 million
- Float: 8.46 million
- Insiders own: 24%
- Institutions own: 71.6%
- Yield: 1.8%

Some of the above numbers are comforting (like very low debt level, very high insider ownership).  Some are disturbing (beta of 2.25, very low float).  While the P/E is relatively benign, the price to book is getting a little stretched.  Risk oriented investors will find this an interesting story and will want to spend more time with CASC.  (For more stock ideas, visit us at www.theonlineinvestor.com)

- Company Web site: www.cascorp.com

- Ted Allrich
January 26, 2012