This post was republished to Measured Approach1 at 10:34:08 AM 8/6/2010

Company Focus: Hawkins, Inc. (HWKN)

Account Measured Approach1

Hawkins, Inc. (HWKN) distributes bulk chemicals and blends, manufactures and distributes specialty
chemicals. Hawkins currently divides its business into two broad segments: industrial and water
treatment.

The industrial segment provides industrial chemicals, products and services primarily to the agriculture,
energy, electronics, food, chemical processing, pulp and paper, pharmaceutical, medical device and
plating industries. This segment’s principal products are acids, alkalis and industrial and food-grade salts.
For the quarter ending 1Q11, sales for this industrial segment increased $0.1 million, or 0.2% to $49.8
million as compared to the same period of the prior year. Reduced selling prices in response to lower
raw material costs offset the impact of increased sales across product lines.

The water treatment group specializes in providing chemicals, equipment and solutions for potable
water, municipal and industrial wastewater, industrial process water and non-residential swimming pool
water. Water treatment sales increased $1.0 million, or 4.2%, to $24.9 million for the three months
ending June 30, 2010 as compared to the same period in the prior year. The sales increase is primarily
due to increased sales of manufactured and specialty chemical products, partially offset by lower prices
due to lower raw material costs.

Investment Thesis

Hawkins is a small player in a fragmented, competitive cyclical commodity business. Its competitive
advantages include flexible, value-added services; strong financials and effective management. Sales for
the first quarter ending June 30, 2010 were $74.7 million and represented an increase of 1.5% from
$73.6 million in sales for the first quarter of fiscal 2010. Net income for the quarter was $7.3 million, or
$0.71 per share, compared to net income of $6.1 million, or $0.59 per share in the same period of the
prior year. For the trailing twelve months ending June 30, 2010, the company reports EPS of $2.46
compared to $2.33 for FYE 3/10. Two analysts provide estimates for FY11. They estimate EPS to range
from $2.29 to $2.34 and average $2.31. Only one analyst provides an estimate for FY12 and that is $2.56
per share.

The current PE is about 13.6X based on trailing earnings and the forward PE is about 14.3X. Both of
these multiples is in line with the historical average multiples. Price-to-Book, at 2.65X is somewhat
higher than the historical average as is Price-to-Sales at 1.32X .

Hawkins has a strong balance sheet. As of 1Q11, the company reported cash and equivalents at $46.9
million and total liabilities at $32.6 million. There is no long-term debt. The management is doing a good
job in controlling costs. Gross margin, at 26.0% is higher than it has been in any year since FY06. The
operating margin is a 16.0% and again at its highest levels in years. Return on equity has grown from
12.0% in FY06 to 20.8% in 1Q11. Similarly, ROA has grown from 9.8% to 16.4%. Both of these metrics are
far better than the industry medians.

The company has announced its regular semi-annual dividend to be $0.30 representing a 7.0% increase
over its last regular dividend and a special dividend of $0.10 per share. This is the 26 th consecutive that
Hawkins has paid a dividend. At recent prices, the Company is providing a yield of about 1.8%.
Hawkins is a small, nimble company successfully executing its mission. It has a consistent history of
growth and dividends; a strong balance sheet; and, effective management. Notable investors including
Charles Royce, Mario Gabelli and T. Rowe Price, among others, hold shares of HWKN.

Disclosure: The author has a long position in HWKN.