For proof of continued strength in the filtration business, look no further than the latest results from CLARCOR
It's important to note that CLARCOR's latest fourth quarter had an extra week of business over last year's. Still, CLARCOR's Engine/Mobile Filtration unit saw fourth-quarter revenues increase 22% year over year, while the Packaging segment grew revenues by 23%; new product entries and price increases fueled growth in both divisions. The company even pointed to locomotive filters, of all things, as a source of strength, as the North American rail system picks up its pace. CLARCOR's Industrial/Environmental Filtration division also increased sales by 11%.
The company continues to experience weakness with sales to the oil and gas business, but CLARCOR expects to see this market accelerate in 2006. Strong results in filtration systems for HVACs, aviation, defense, fluid power, and sewage treatment in Europe all helped to offset this weakness.
The breadth of products CLARCOR offers is impressive and should give shareholders peace of mind. The company's scope lets it absorb slowdowns in certain areas as sales accelerate in other markets. In the conference call, CEO Norm Johnson added that CLARCOR's exposure to wide segments of filtration also gives it great flexibility in acquisitions.
Recent sales have been driven by product development and increased prices, a trend that investors should expect to continue. In 2006, the company estimates that capital expenditures will increase to a range of $25 to $30 million as CLARCOR devotes more resources toward introducing new products. However, the company does have concerns about higher energy expenses' effects on its bottom line. Net sales did increase by 16.4% in the latest quarter, partly because of CLARCOR's own less-than-2% price increases. But gross margins remained flat, with the cost of sales as a percentage of total revenue sitting at 68.9%. In 2006, CLARCOR plans to continue passing on these higher costs to customers.
Overall, the company's prospects look healthy -- especially given its outlook in China, where sales grew more than 50% in 2005. CLARCOR is a worthy addition to any investor's watch list.
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