Ennis Is Printing Profits

There's something refreshing about the focus on profits over revenue growth at printing and apparel company Ennis (NYSE: EBF  ) . Of course, the cynical investor will interpret that focus as a lack of growth potential, but as a value investor, I often find that such companies offer overlooked returns.

Ennis' first quarter is evidence of the company's stated focus. Sales fell by 2.7%, but true to form, earnings rose by 7.3%. The decline in sales was due to shutting down two printing facilities and ceasing sales to a large promotional customer. While the results aren't exactly pretty, they aren't anything to scoff at.

The balance sheet at Ennis is a bit debt-heavy, which is largely due to acquisitions made in fiscal 2005. That said, Ennis has more than adequate interest coverage, and the company is making headway on its debt.

The company's two product lines are anything but flashy, and there is no lack of competitors in printing and basic apparel. In printing, Standard Register (NYSE: SR  ) , RR Donnelley & Sons (NYSE: RRD  ) , and Cenveo (NYSE: CVO  ) are all competitors to a varying degree, and much the same can be found in apparel with GildanActivewear (NYSE: GIL  ) , Hanes, and others. Still, Ennis generates more than enough operating cash flow to cover its capital-expenditure needs, and the company's dividend is also funded, though not growing.

The printing business is a slowly declining one, but Ennis has been able to maintain profitability and slowly grow through acquisitions. On the surface, the apparel business actually concerns me a bit more than the printing business does, since non-branded T-shirts and other basics can basically be had anywhere, and also since low-priced imports are always a possible concern. However, it is possible that the apparel business could be a long-term, unexciting cash-flow generator.

I need to take a deeper look at the return on invested capital and valuation at Ennis, but an initial eyeballing of the financials gives reason to be encouraged with the low price-to-cash flow ratios, and the 3.3% dividend yield only adds to the attractiveness.

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At the time of publication Nathan Parmelee had no financial interest in any of the companies mentioned. The Motley Fool has an ironclad disclosure policy.