National Presto: Of War and SaladShooters
National Presto Industries Inc. (NYSE: NPK), known for its pressure cookers and other kitchen appliances, is hitting its mark as a weapons supplier to the military. Peel a Meal potato peelers won’t count for much in future performance compared with sales of medium caliber ammunition, a category the company has its sights on.
The resourceful Eau Claire, Wis., company, is known for a variety of small household appliances, such as pots and pans and pressure cookers, hot-air popped corn and handy dorm room pizza contraptions. It spawned the Fry Baby (“America’s original mini-fryer!”) and recently introduced the FlipSide Belgian waffle maker, promising a restaurant quality experience. It also makes private label diapers for babies and adult incontinence protection.
But alongside its aptly named SaladShooter, the company produces medium caliber training and tactical ammunition, energetic ordnance items, fuses, firing devices and cartridge cases. The revival of sales to the Department of Defense has business humming at National Presto and, based on a long-term contract, sales to the military will remain intact for at least a couple more years.
When announcing preliminary earnings for the first quarter ended April 1, National Presto’s CEO Maryjo Cohen attributed the company’s strong performance mainly to the defense segment, which had a sizable rise in both sales and earnings from the corresponding quarter in 2006. A specific military contract was key: "Heightened activity stemming from performance of the five-year forty millimeter systems contract awarded in April 2005 was the source of much of the increase," Cohen said.
Operating in three segments--housewares/small appliances, absorbent products and defense--the company's preliminary earnings bounced to $0.73 per share in the first quarter through March, up from $0.28 a year earlier. Net sales were $83 million, up from $45 million.
In fiscal 2006, preliminary earnings were $4.09 per share on revenues of $304.7 million, up sharply from earnings of $2.78 dollars on revenues of $184.6 million in 2005. In February, the company’s board of directors increased its regular dividend to $0.95 per share from $0.92, plus an extra dividend of $2.85, all payable March 13.
Presto! That’s where visibility into this company starts to fade. There’s been chaos in the kitchen: National Presto was sued by the Securities Exchange Commission in 2002, which alleged National Presto was an unregistered investment company from 1994 to 2002 because it held more than 40% of its assets in investment securities. Filings were delayed as the company contested that charge; the most recent is the annual report for the fiscal year ended Dec. 31, 2005. During that December, a federal district court in Chicago granted the SEC’s motion and ordered National Presto to register under the Investment Company Act. National Presto, denying that it has ever been an investment company, appealed the district’s court’s decision.
Change-o! The appeals court ruled May 15 in National Presto’s favor, but its auditor told National Presto that it would not reinstate its opinions for 2003, 2004 and 2005. The company has secured a new auditor and said July 10 that it intends to file its 2005 and 2006 form 10-K annual reports with the SEC by August 24--the same date the company’s CFO Randy Lieble will effectively resign.
Despite a lack of analyst coverage, National Presto’s shares are poised at the high end of their 52-week range, trading recently at about $61.00 each and giving the company market capitalization of about $454 million. The 52-week high is $66.98 and the low $49.60.
National Presto’s valuation compared to peers is problematic. The company’s share rise has lagged others such as Russ Berrie and Co. (NYSE: RUS), which makes gifts and consumer products for infants and children and had a loss in fiscal 2006; its stock is up about 22% this year, compared with National Presto’s gain near 7%. Libbey (NYSE: LBY), also in the household products sector, is up more than 80% but also had a loss in 2006. National Presto‘s PE near 15 compares with the appliance segment‘s PE near 20, within the consumer goods sector.
Five years ago, the company made its first acquisition to reestablish a presence in the war industry, having jumped into weapons production in World War II only to resume household appliance-making after that war ended. In February, the company acquired Amron L.L.C., a defense manufacturer of cartridge cases used in medium caliber ammunition (20-40 millimeter).
Amron, National Presto’s third weapons buy in the past five years, is the sole producer of cartridge cases for the Department of Army’s five-year 40 millimeter Systems Program for which AMTEC Corp., a National Presto subsidiary, is one of two prime contractors. Amron sales for calendar year 2005 were about $28 million dollars.
In addition to Amron and AMTEC, the company’s defense segment includes Spectra Technologies, a load, assemble and pack (LAP) facility. The segment’s backlog in early February was more than $150 million dollars. The company, understandably, is “cautiously optimistic” about its defense division, CEO Cohen said in a release.
But the lack of government reports gives investors pause, and many are unwilling to take aim on National Presto until after the August SEC filings.
Available evidence, though, shows a company whose future will be determined by the coffers of the military, not by consumer budgets. SaladShooters aside, that alone bodes well for National Presto.
