Ennis Menaced by Weak Macro Environment

By Chris Jones
December 31, 2008 | Comments (2)

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One of my coworkers asked me if I thought that the United States was about to experience another Great Depression. I told her that I think we're still a ways off from standing in soup lines, but that doesn't mean stomachs haven't been growling lately. Take Ennis (NYSE: EBF), for example.

Compared to the same period last year, this manufacturer of private-label printed products nearly starved last quarter. Three-month net earnings fell 15% to $9.9 million, or $0.38 per diluted share on $142 million in revenues, which were down by 10%. The disappointing quarterly results aren't exactly shocking; it produces and distributes things like customized T-shirts and 3M (NYSE: MMM) Post-it® Notes for organizations, so its sales are tied to overall business spending.

And you're telling me this because?
Ennis had an ugly quarter, but its bottom line stayed in the black, which is somewhat of an achievement. Just ask beleaguered companies like Citigroup (NYSE: C) and General Motors (NYSE: GM). Plus, its nine-month period performance wasn't all that bad -- strength in its apparel segment drove positive net revenue growth, and operating cash flow more than doubled despite tighter gross, operating, and net profit margins compared to last year.

Solid operating cash flow allowed it to pay down a sizable portion of its long-term debt, which now tips the scales around $71 million -- total enterprise value is in the ballpark of $365 million, or a little over six times nine-month EBITDA.

Cut to the chase. Is it time to buy, or what?
Keep an eye on Ennis. Things may get worse for the broader economy, and aggressive competition could whittle away at its margins. However, you might think we've already seen the worst.

In that case, Ennis looks pretty good on the surface. It trades at a sub-10 earnings multiple and also sports a 5.6% dividend yield. If it passes your due diligence, there just may be room for it in your portfolio. 

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Chris Jones has neither long nor short positions involving any company mentioned in this article. 3M is a Motley Fool Inside Value pick. The Motley Fool’s disclosure policy ate 50 hard-boiled eggs in an hour.

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  • Report this Comment On January 03, 2009, at 4:09 PM, clamsoe wrote:

    Let's see. You're saying Ennis is a good investment because GM can't sell lousy cars and Citigroup lost it's ass in derivatives? Apples, Oranges and Kiwi Fruit.

    Bad pitch, man. Try again, later.

  • Report this Comment On March 06, 2009, at 5:04 PM, kurtdabear wrote:

    EBF is a solidly managed, cost-conscious company that's got a lot more going for it than T-shirts and Post-It notes. Their original core business is custom business-forms printing, including electro-sensitive-ink printing, die-cutting, etc.

    They got into the T-shirt business a few years ago, figuring they could co-market it with their promotional-printing and store-display lines. I don't know how that will hold up for them in a depression, but it is a low-cost apparel line.

    I owned EBF in the early 90's, buying in the same price range as they are now and more than doubled my money in a couple of years. They always pay cash for acquisitions and always pay down debt as fast as possible. They've been paying that 62-cent a year dividend since before I first owned them (I don't hold any at this time, but have them long in my CAPS portfolio.). We're in far worse economic times now than we were in the early-mid-90's, so they could go a bit lower, but they'll be a survivor, and with a PE under 5 and a yield over 7%, they're looking like a great value play again.

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12/1/2009 4:00 PM
C $4.10 Down -0.01 -0.24%
Citigroup, Inc. CAPS Rating: ***
EBF $14.64 Up +0.15 +1.04%
Ennis, Inc. CAPS Rating: *****
GM $0.75 Down +0.00 +0.00%
General Motors Cor… CAPS Rating: *
MMM $78.63 Up +1.19 +1.54%
3M Company CAPS Rating: *****

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