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 specialtychemicals. Hawkins currently divides its business into two broad segments: industrial and watertreatment.The industrial segment provides industrial chemicals, products and services primarily to the agriculture,energy, electronics, food, chemical processing, pulp and paper, pharmaceutical, medical device andplating industries. This segments principal products are acids, alkalis and industrial and food-gradesalts.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 tolower raw material costs offset the impact of increased sales across product lines.The water treatment group specializes in providing chemicals, equipment and solutions for potablewater, municipal and industrial wastewater, industrial process water and non-residential swimming poolwater. Water treatment sales increased $1.0 million, or 4.2%, to $24.9 million for the three monthsending June 30, 2010 as compared to the same period in the prior year. The sales increase is primarilydue to increased sales of manufactured and specialty chemical products, partially offset by lower pricesdue to lower raw material costs.
Hawkins is a small player in a fragmented, competitive cyclical commodity business. Its competitiveadvantages include flexible, value-added services; strong financials and effective management. Sales forthe 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 theprior year. For the trailing twelve months ending June 30, 2010, the company reports EPS of $2.46compared to $2.33 for FYE 3/10. Two analysts provide estimates for FY11. They estimate EPS to rangefrom $2.29 to $2.34 and average $2.31. Only one analyst provides an estimate for FY12 and that is $2.56per 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 somewhathigher 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 $46.9million 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. Theoperating margin is a 16.0% and again at its highest levels in years. Return on equity has grown from12.0% in FY06 to 20.8% in 1Q11. Similarly, ROA has grown from 9.8% to 16.4%. Both of these metrics arefar better than the industry medians.The company has announced its regular semi-annual dividend to be $0.30 representing a 7.0% increaseover its last regular dividend and a special dividend of $0.10 per share. This is the 26
consecutive thatHawkins has paid a dividend. At recent prices, the Company is providing a yield of about 1.8%.