Monday, December 22, 1997

Oneida Ltd.
Phone: 315-361-3000
Price (12/19/97): $35 3/16


Sometimes there is gold in silver. For investors mining for an undervalued investment, silver flatware maker Oneida proved to be the mother lode.

After the company shed a copper subsidiary that was sandbagging profits, its more polished financials attracted Wall Street. With margins improving due to factory efficiency and an increase in sales of premium-priced consumer goods, the company's earnings surge has been explosive.

For a steady grower over the years with an enviable history and consecutive quarterly dividends going back 62 years, the time had come for the shares to head skyward. The Oneida fork ran away with the spoon -- and the stock jumped over the moon.


Silver spoons? Oneida's got them. Oneida is the largest seller of sterling silver flatware worldwide. Based, naturally, out of Oneida, New York, the company also distributes institutional flatware.


Income Statement
12-month sales: $422.2 million
12-month income: $27.4 million
12-month EPS: $2.14*
Profit Margin: 6.5%
Market Cap: $394.1 million
(*Excludes one-time gain)

Balance Sheet
Cash: $3.9 million
Current Assets: $217.4 million
Current Liabilities: $86.2 million
Long-term Debt: $67.7 million

Price-to-earnings: 16.4
Price-to-sales: 0.93


So far this year, the flatware maker has been anything but flat. Over the first nine months of the fiscal year sales have risen by 16% while earnings have soared by 61%.

In an industry where growth is acquired rather than earned, Oneida has been active in buying out Rego China. While the company already had a foot in the plateware market with its own Buffalo China, the purchase of Rego let Oneida accelerate its evolution from being primarily a silverware provider to being a company set on canvassing the tablecloth. The company had little choice but to broaden its product lines since it already owned 45% of the market for stainless steel flatware.

Over the summer the company also took a 25% stake in German glassmaker Schott Zwiesel, becoming the exclusive stateside distributor of Schott's glassware.

The expansion obviously does little to explain how the bottom line has improved at a substantially greater clip than the top line. Back in February the company sold off Camden Wire. The copper subsidiary was eroding profit margins, and with new acquisitions and international expansion more than offsetting Camden Wire's sales contribution, it was time to see the profits pan out.

With Camden gone, the healthier operating margins for the core lines made it down to the bottom line. With the company selling at a single-digit 1997 P/E ratio back in the spring, a savvy investor may have been tipped off to the value in Oneida. That was the easy part. Once it became clear that the Camden-less company would improve margins substantially and that earnings were destined to outmuscle even stagnant sales, investors knew they had a margin growth winner.


Don't blink now, but shares of Oneida will split 3-for-2 at the end of the year. It is a fitting close to a remarkable transitory period for the company. Plans for next year include a table-wide product line.

The Rego and Buffalo China divisions cater to the low-margin institutional foodservice market. While the silverware and glassware divisions are already selling to both the restaurant industry and consumers, now all divisions are going to cater to the higher-margin retail segment.

The profit margin blowout is over. The efficiencies are in place and one should not expect 61% earnings growth to repeat any time soon. Analysts are projecting that the company will earn $2.50 next year, a 14% increase to keep pace with the expected sales hike for 1998.

As the earnings momentum contracts to a realistic historical level, the fact that the stock is selling for 14 times next year's earnings estimates should keep the fairly valued stock in check -- and china.

-Rick Aristotle Munarriz

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