The
RocksandBoulders Summary:
Today Jarden reported strong revenue growth and net income above consensus estimates. Net sales increased 52% to 792 mm on a year over year basis, and earnings were $0.09 per share compared to expectations for a nickel. The significant growth in revenue stemmed mainly from the acquisition of the American Household and Holmes Group businesses, but organic growth still contributed 11% to the top line.
Operating margin improvements and the previous year’s acquisitions lead to a 27% increase in Ebitda. Further, management maintains that there will be additional operating leverage from the integration of new brands and distribution that will enable Jarden to achieve its stated goal for 12% Ebitda margins. Although the company was a net user of cash for operations and financing activities, this fits with Jarden’s historical trend of using cash during the 1st half to develop and deliver products. The company expects to generate significant free cash flow during the second half and plans to use this cash primarily to pay down debt. Management did note they had made 2 small acquisitions during the 1st quarter in which they were able to purchase companies with 15% Ebitda margins at 5x Ebitda. Management also added that during the second half they would consider the possibility of tuck-in acquisitions funded by free cash.
Jarden also highlighted new revenue initiatives at its Coleman brand as well as its coin minting business. As in the past, management discussed its desire to improve Jarden’s credit rating and acknowledged the difficulty of pleasing the rating agencies while at the same time using free cash to acquire companies. The stock’s near 4% run today implies that Wall Street believes in management’s ability to conservatively grow the business. Could expectations once again out-pace the business’s ability to generate cash, as occurred at the end of 2005?
