K-Tron International: A quiet giant

Paul Rolfes | Jul 17, 2008 6:20am EDT | 1 Comment

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Not all the movers and shakers are in Washington, New York or Tokyo. K-Tron International Inc. (Nasdaq:KTII), a mover and shaker in material handling equipment, operates out of Pitman, N.J., near Philadelphia, with branches in such far-off places as Kansas, Georgia, Europe and China.

Make that mover, shaker and measurer. Chances are the scales that accurately parceled out the two scoops of raisins in this morning’s fruit-filled bowl of breakfast cereal were from a K-Tron subsidiary.

The coal that probably generated the electricity lighting your home or office could have been pulverized by equipment from another K-Tron company. Wood chips needed to make the morning paper could have been processed with machines from another K-Tron unit.

In material-handling equipment, K-Tron is a quiet giant. But Wall Street has yet to get excited about K-Tron — and that’s how the company prefers it. No analysts cover K-Tron, and there are no quarterly conference calls. K-Tron stopped issuing guidance. Its focus is on running its businesses.

K-Tron sprang to life in 1949 as Monsell, a maker of pneumatic scales. It took on its current identity in 1964 and went public in 1980. K-Tron has blossomed during the 10-year leadership of chairman and CEO Edward B. Cloues II.

K-Tron operates a process group, covering its feeder and pneumatic conveying operations, and size-reduction group, for crushing, screening and other conveying equipment.

“Over the last five years, the company has launched into a growth strategy that includes looking at the appropriate acquisitions in materials handling,” said Ronald Remick, K-Tron’s senior vice president, chief financial officer and treasurer, in an interview with SmallCapInvestor.com. “We follow strict criteria … that they’re profitable, that they have a strong position in their fields, with good management, and that we don’t overpay. We don’t want to buy fixer-uppers.”

Starting in early 2003, K-Tron acquired privately held Pennsylvania Crusher Corp. and its wholly owned subsidiary, Jeffrey Specialty Equipment Corp., which respectively make the coal-pulverizing machines that utilities need, and the hammermills that mash wood for the paper and pulp industries.

Since then, K-Tron also has acquired privately held J.M.J. Industries, an Illinois company whose Gundlach size-reduction equipment is used in coal mining. Last year, Jeffrey paid about $16 million for privately held Rader Cos., a Georgia maker of pneumatic conveying systems used in pulp and paper.

K-Tron took the leap of going beyond selling in China, to setting up a manufacturing base there in 2007. The company paid $3.5 million for assets from Wuxi Chenghao Machinery Co. Ltd. K-Tron employs 65 people about 60 miles west of Shanghai in the design, manufacture and marketing of feeders and equipment.

“K-Tron has been selling into China for many, many years,” Remick said. “The Wuxi plant allows us to sell into a regional market, and in the local currency.”

Despite a recessionary chill and bear-leaning stock market, Remick said K-Tron has not experienced a slackening in demand. “Coal is going gangbusters,” he said, “and the utility industry is chugging along.” Replacement parts are always needed by power generators, and since people have to eat, the food industry continues to require machinery to keep a growing population fed.

Examining the KTII share price performance for 15 years, the stock flat-lined below $10 for a while, then stuck around $20 until late 2003, when the K-Tron growth machine kicked in. The stock climbed steadily with few substantial retrenchments on the way to an all-time high of $140.50 on May 5. K-Tron, which hit a 52-week low of $79 last July 26, closed Wednesday at $129.29.

K-Tron’s stock ended 2007 at $120, having risen 60% in the year. Over the previous six years, shares increased 11-fold in value. About 60% of K-Tron stock is held by institutional investors, such as the T. Rowe Price Small Cap Value Fund, a 9.4% stakeholder. Average daily trading volume is just above 18,000 shares.

The customer base is varied, and K-Tron said in its 2007 annual report that no single customer accounted for 10% or more of its revenue. Order backlog topped $70 million at the end of 2007, a 37.5% increase from 2006 — then rose nearly 8% in the first three months of this year.

In 2008, K-Tron reported its best first quarter ever, as revenue increased 22% to $57.3 million, net income climbed nearly 16% to $5.7 million, and earnings per share increased to $1.96 from $1.72 in the 2007 period. K-Tron also noted the weak dollar enhanced revenue growth by about six percentage points.

K-Tron has received recognition as one of the best small businesses on several lists. In last month’s reconstituting of the Russell 2000 index, K-Tron was added to that small-cap indicator.

Based on past years, K-Tron is likely to report midyear results in early August. With Asian growth squarely in its sights, along with a viable U.S. marketplace, K-Tron is on the move — but quietly.