Being a writer, I generally like to stick to words you can find in an English dictionary. No doubt, some more worldly readers will find fault with this narrow view, but is there really a need to improve on the language of Shakespeare? However, given that the venerable bard died more than 400 years ago, he probably won't mind if I make the occasional exception.
Kaizen is the Japanese word for "continuous improvement." It's a tool often associated with the implementation of Lean Six Sigma. This quality-improvement methodology has found considerable success at General Electric
Given the second-quarter results Fuller reported today, it seems this old dog can learn some new tricks. After four flat years, revenues grew by 6.8%. Even more impressive was net income growth of 45% (33.6% net of the effect of one-time gains/charges). For a company manufacturing petroleum-based products -- when petroleum costs half again more than it did a year ago -- this is no mean feat. The company raised EPS guidance for the year to $1.75-$1.85, well above analyst estimates of $1.48 and prior-year performance of $1.35. In early trading, the stock was up about 8%.
The company credits its recent success to conducting large numbers of kaizen events focused on improving production efficiency, reducing waste, and improving customer satisfaction. I won't bore you with the details of lowering paint production costs in Panama by 26% -- you get the general idea. Over the past year, Fuller has trained more than 100,000 employees to use Lean Six Sigma.
Why is this company worth a look? It may not fit the profile of rapid growth or sustainable competitive advantage that many Foolish readers look for, and it's certainly not a Rule Breaker. But this company provides products that everyone needs and uses. It's not a particularly exciting business, nor is it likely to become a fad, but it's the sort of sleeper Warren Buffett might like. Operating cash flow last year was $90 million (more than $3 per share), and Fuller pays a 1.5% dividend. Debt to total capitalization is manageable at 29%, and it's headed lower.
Fuller could also benefit substantially if oil prices fall from current levels. And then there's that kaizen. After more than a century of manufacturing essentially the same products, I wouldn't be surprised if Fuller can find even more room for improvement.
For more information, see H.B. Fuller's second-quarter results by the numbers.
Other companies benefiting from Six Sigma:
Fool contributor Timothy M. Otte learns at least one new word each day. He welcomes comments on his articles, but doesn't own the stock of any company mentioned in this article.
