Orchids is a relatively small paper products company trying to grow into a medium size paper products company. It's an integrated manufacturer of tissue products serving the private label, or "at-home" market, and to a lesser extent the “away from home” market. The company produces paper towels, bathroom tissue and paper napkins. The core buyer of their products in the “at home” market consists of dollar stores and other discount retailers that offer a limited selection across a broad range of products at everyday low prices. This market consists of several quality levels to include a value tier, a premium tier and an ultra-premium tier. The “away from home” market mainly consists of companies in the janitorial and the food service market.
Orchids Paper Products Company manufactures and sells tissue products for at-home and away from home markets in the United States. Its products include paper towels, bathroom tissues, and paper napkins. The company offers its products under Colortex, My Size, Velvet, Big Mopper, Linen Soft, Soft & Fluffy, and Tackle brands; and licensed brands, such as Virtue, Truly Green, Golden Gate Paper, and Big Quality. It also sells parent rolls to other converters. The company serves discount retailers, grocery stores, grocery wholesalers and cooperatives, convenience stores, janitorial supply stores, and stores in the food service market. Orchids Paper Products Company was founded in 1976 and is headquartered in Pryor, Oklahoma. (Summary) (Company) (Daily Chart)
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30 March 2015
Price $25.59 1yr Target $34.33 Analysts 3 1yr Cap Gain 34.15% Dividend $1.40 Yield 5.47% 1yr Est Tot Return 39.62% 3yr DivGR 40.46% 5yr DivGR N/A P/E 23.69 PEG 1.39 |
Market Cap $224.17 Mil
Beta 0.45 EPS (ttm) $1.08 Payout Ratio 129.62% EPS next yr $2.19 Forward P/E 11.67 Debt/Equity 0.38 ROA 7.70% ROE 12.40% ROI 7.10% Sales $142.70 Mil Income $9.50 Mil Profit Margin 6.65% |
Recent Developments
Orchids has been operating successfully as a regional supplier of paper products for almost forty years with their effective market penetration being approximately 500 miles surrounding Pryor, Oklahoma. This target area included Oklahoma, Texas, Arkansas, Missouri and Kansas. In the last two years, however, the company has started it's transition into a national company. A major portion of that transition involved Orchids acquiring the Western United States paper business from Fabrica de Papel San Francisco ("Fabrica") of Mexicali, Mexico. Subsequent to that transaction Orchids negotiated a supply agreement with Fabrica to buy product from them for resale.
In November 2013, Orchid announced projects to replace two existing paper machines with a new paper machine and install a new converting line to improve their manufacturing flexibility, capacity and cost structure at their Oklahoma plant. This project began in early 2014 and during the last half of the year Orchids decommissioned the two older machines and began construction and installation of the new paper machine.
Costs associated with that paper machine project resulted in higher costs in their paper making operations and gross margins were lost on the parent roll sales. The company also experienced higher production costs during the conversion and this resulted in earnings per diluted common share decreasing from $1.67 in 2013 to $1.11 in 2014.
In 2014 Orchids took the initial steps in achieving their mission of being a national supplier of high quality consumer tissue products by acquiring the U.S. business operations of Fabrica. Orchids also acquired the paper making and converting manufacturing capacity at Fabrics’ facility in Mexicali, Mexico. This acquisition will allow the company to effectively service their new customers in the western United States at a low cost. Since completing this transaction Orchids has focused its efforts on integrating this production capacity with their Oklahoma operations, increasing sales to the western United States and partnering with Fabrica to jointly improve production techniques.
I expect that both those investments that incurred in 2014 of building a new paper making and converting capacity in Pryor and establishing a partnership with Fabrica will lower the company's overall costs and position the company to improve their gross margins while creating needed capacity to continue to grow sales.
In 2015 Orchids plans to focus its efforts on expanding their partnership with Fabrica. The company expects that this will improve product development efforts and manufacturing processes at both sites. This should also improve the company's overall production costs and operating margins.
Orchids has been operating successfully as a regional supplier of paper products for almost forty years with their effective market penetration being approximately 500 miles surrounding Pryor, Oklahoma. This target area included Oklahoma, Texas, Arkansas, Missouri and Kansas. In the last two years, however, the company has started it's transition into a national company. A major portion of that transition involved Orchids acquiring the Western United States paper business from Fabrica de Papel San Francisco ("Fabrica") of Mexicali, Mexico. Subsequent to that transaction Orchids negotiated a supply agreement with Fabrica to buy product from them for resale.
In November 2013, Orchid announced projects to replace two existing paper machines with a new paper machine and install a new converting line to improve their manufacturing flexibility, capacity and cost structure at their Oklahoma plant. This project began in early 2014 and during the last half of the year Orchids decommissioned the two older machines and began construction and installation of the new paper machine.
Costs associated with that paper machine project resulted in higher costs in their paper making operations and gross margins were lost on the parent roll sales. The company also experienced higher production costs during the conversion and this resulted in earnings per diluted common share decreasing from $1.67 in 2013 to $1.11 in 2014.
In 2014 Orchids took the initial steps in achieving their mission of being a national supplier of high quality consumer tissue products by acquiring the U.S. business operations of Fabrica. Orchids also acquired the paper making and converting manufacturing capacity at Fabrics’ facility in Mexicali, Mexico. This acquisition will allow the company to effectively service their new customers in the western United States at a low cost. Since completing this transaction Orchids has focused its efforts on integrating this production capacity with their Oklahoma operations, increasing sales to the western United States and partnering with Fabrica to jointly improve production techniques.
I expect that both those investments that incurred in 2014 of building a new paper making and converting capacity in Pryor and establishing a partnership with Fabrica will lower the company's overall costs and position the company to improve their gross margins while creating needed capacity to continue to grow sales.
In 2015 Orchids plans to focus its efforts on expanding their partnership with Fabrica. The company expects that this will improve product development efforts and manufacturing processes at both sites. This should also improve the company's overall production costs and operating margins.
Revenues, Earnings and Dividends
Even though Orchids has been around for nearly forty years, the company is now in transition so the fundamentals must be seen in light of this transition. As pointed out above, increasing the capacity at the Oklahoma manufacturing plant and the agreements made with Fabrica are distorting the revenues, earnings and dividends. It also doesn't hurt to understand this country went through a recession in 2009-2010 and that portion of the population that frequents the thrift stores were hurt more than other portions of the country. That said, the data below looks remarkable and demonstrates a company that growing. The data also shows a company that cares about its shareholders by continuing to increase the dividend, however slightly, as earnings fluctuated in 2014 due to one time transitional charges. This simply demonstrates the confidence that management has in the fundamentals of the company going forward. As this transition continues, estimates show a company expanding nicely, dividends continuing to increase, and the dividend payout ratio shrinking to a more supportable level.
Even though Orchids has been around for nearly forty years, the company is now in transition so the fundamentals must be seen in light of this transition. As pointed out above, increasing the capacity at the Oklahoma manufacturing plant and the agreements made with Fabrica are distorting the revenues, earnings and dividends. It also doesn't hurt to understand this country went through a recession in 2009-2010 and that portion of the population that frequents the thrift stores were hurt more than other portions of the country. That said, the data below looks remarkable and demonstrates a company that growing. The data also shows a company that cares about its shareholders by continuing to increase the dividend, however slightly, as earnings fluctuated in 2014 due to one time transitional charges. This simply demonstrates the confidence that management has in the fundamentals of the company going forward. As this transition continues, estimates show a company expanding nicely, dividends continuing to increase, and the dividend payout ratio shrinking to a more supportable level.
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Year
2016 Est 2015 Est 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 |
Revenues
$180.12 Mil $170.89 Mil $142.72 Mil $116.37 Mil $100.81 Mil $97.84 Mil $92.50 Mil $95.96 Mil $90.20 Mil $74.64 Mil $60.19 Mil $57.50 Mil |
Earnings
$2.20 $1.80 $1.11 $1.67 $1.18 $0.80 $0.76 $1.89 $0.79 $0.40 $0.11 $0.30 |
Dividends
$1.75 $1.50 $1.40 $1.35 $0.85 $0.50 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 |
Payout Ratio
79.54% 83.33% 126.12% 80.83% 72.03% 62.50% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% |
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Revenue Growth Rate
1 year = 22.64% 2 year = 18.98% 3 year = 13.26% 4 year = 11.45% 5 year = 8.26% 9 year = 10.51% |
Earnings Growth Rate
1 year = -30.62% 2 year = -3.02% 3 year = 11.41% 4 year = 9.93% 5 year = -10.10% 9 year = 15.47% |
Dividend Growth Rate
1 year = 3.70% 2 year = 28.33% 3 year = 40.46% 4 year = N/A 5 year = N/A 9 year = N/A |
The Competition
Orchids Paper Products Company is part of the Cleaning Products Industry which is part of the Consumer Goods Sector of the economy. Below is a list of the major corporations included in this industry and are listed in the order of their market capitalization.
- Ecolab Inc (ECL)
- Church & Dwight Company, Inc (CHD)
- Stepan Company (SCL)
- Zep Inc Common Stock (ZEP)
- Orchids Paper Products Company (TIS)
- Ocean Bio-Chem Inc. (OBCI)
- Swisher Hygiene Inc. (SWSH)
My Perspective
I believe this company has a great track record of increasing their sales and profits over an extended period of time. I also believe that this company will successfully transition from a small company to a medium sized company over the next few years. Once this transition is complete, more and more of their top line growth should drop to their bottom line and shareholders will benefit tremendously. And I want to be one of those shareholders.
I intend to start a small position in this company in the next couple of weeks and build from there as the fundamentals of the company continue to improve. I believe Orchids has found a nice niche and is producing much needed products for a large portion of the American population. Their products and their geographic expansion, as well as management's commitment to its shareholders, can only benefit those investors lucky enough to own shares of this company.
I believe this company has a great track record of increasing their sales and profits over an extended period of time. I also believe that this company will successfully transition from a small company to a medium sized company over the next few years. Once this transition is complete, more and more of their top line growth should drop to their bottom line and shareholders will benefit tremendously. And I want to be one of those shareholders.
I intend to start a small position in this company in the next couple of weeks and build from there as the fundamentals of the company continue to improve. I believe Orchids has found a nice niche and is producing much needed products for a large portion of the American population. Their products and their geographic expansion, as well as management's commitment to its shareholders, can only benefit those investors lucky enough to own shares of this company.
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