Ever wonder who makes all those Campbell's (NYSE: CPB ) soup cans? How about those sweet upside-down mayonnaise squeeze bottles sold by Unilever (NYSE: UL ) ?
The company behind these and countless other consumer packaging solutions is Silgan Holdings (Nasdaq: SLGN ) . And boy, is it a boring business.
From my early Fool days of watching grass grow and paint dry, you know I have a soft spot for the mundane. These companies are just such a refreshing change of pace from more bleeding-edge parts of the market, such as cleantech, where visions are bold and much cash is burned.
Even if you could care less about bottle and can manufacturing, I hope you'll find my multifaceted approach to the value of Silgan's business useful.
In no particular order, I'm going to run through 10 things I love about this home run stock. (Yes, Silgan has stomped the market -- it's better than a 10-bagger so far this decade).
1. Dominant market share
Silgan commands fully half of the North American metal food-container market by unit volume. It also holds a formidable presence in plastic containers for personal-care products, and caps and lids for perishable items.
2. No-growth industry
This may seem counterintuitive, but I smiled when reading from the 10-K that "the market for metal food containers in the United States has experienced little or no growth over the last ten years." Silgan has achieved growth by making smart acquisitions and establishing itself as a low-cost producer in the space. Combine that status with an industry that offers little room for new entrants, and you've got a decent competitive moat.
3. Recession resistance
This consideration is certainly topical. Silgan's customers (see No. 4) sell consumer staples. Demand for soup and shampoo is hard to shake. Looking back to the early 1990s, Silgan's biggest year-over-year revenue decline was a modest 7% dip.
4. Blue-chip customers
Silgan's customer base is a who's who of companies likely to survive Armageddon. From PepsiCo (NYSE: PEP ) and Coca-Cola (NYSE: KO ) to Procter & Gamble (NYSE: PG ) and Johnson & Johnson (NYSE: JNJ ) , these revenue streams aren't running dry any time soon.
5. Pricing power
The company isn't totally immune to cost inflation from materials like steel and resin, but it's been successful in the past in passing those costs along to customers.
6. Fat founders' stake
The company's name is actually a composite of co-founders/co-chairmen Silver and Horrigan. It's not the catchiest moniker, but the gentlemen's one-third stake in the business definitely catches this Fool's eye. It's natural to act in shareholders' best interests when you're the largest minority owner.
7. Focus on free cash flow
I love to hear a management team talk free cash flow on its conference calls, whether the capital allocation strategy leans toward reinvesting in the business or returning cash to shareholders. Guidance for 2008 calls for more of the green stuff, thanks to lower capital spending and working capital needs.
8. Monster returns on equity
With operating margins in the 6%-9% range, this business isn't shooting the lights out in terms of profitability. That's why management uses a hearty amount of debt: to increase returns for equity owners. The resulting numbers are stunning. For example, return on equity in 2007 was 28%. Each year, Silgan's interest payments are covered by operating profits roughly four times over, so I have no problem with this leveraged capital structure.
9. Room to grow
Over the past 20 years, Silgan has grown its metal-container market share from around 10% to roughly 50%. That pace of consolidation naturally has to ease. Fortunately, other operating areas remain fragmented, and I expect this company to just keep building its empire of boring businesses.
10. Flat share count
Despite its strategy of growing through acquisitions, Silgan has fewer shares outstanding than at the end of 1993. That means shareowner earnings claims haven't been diluted whatsoever over that long stretch of time.
The Foolish finale
I know I said I'd just list 10 things I love about this boring business, but for those of you who stuck with me, here's a bonus 11th: Silgan's financial reports are some of the clearest that I've ever seen. If there were more companies like Silgan around, our job as investors would be a whole lot easier.