Ennis Menaced by Weak Macro Environment
By
Chris Jones
December 31, 2008
|
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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