Sector Watch: Personal-care products
Consumer products companies face real challenges during times when consumer spending is soft, but Helen of Troy Limited (Nasdaq:HELE) and National Presto Industries (NYSE:NPK) are weathering the current storm far better than most.
Helen of Troy Limited produces personal care products such as hair dryers, curling irons, shavers, hair accessories and skin care products under well-known brand names such as Vidal Sasson, Revlon, Sunbeam, Pro Touch and Salon Creations. The company added housewares to its product line in 2004 by acquiring OXO International, a manufacturer of kitchen tools and cutlery. HELE’s houseware sales grew nearly 20% last year and offset slower growth in the personal-care products segment. While only about a quarter of the size of its personal-care business, the housewares division contributed 43% of HELE’s 2008 operating income.
The company markets its products through mass merchandisers, drug chains, groceries and specialty stores. Product line extensions were a major driver of earnings growth last year, with FY 2008 per-share earnings improving 22% to $1.93 from $1.58. HELE introduced 526 new products in 2008 and has an additional 389 new products in its 2009 development pipeline.
The company surprised analysts in the first quarter of FY 2009 by reporting non-GAAP per-share earnings of $0.42, up 31% from last year’s first quarter and 40% above analyst estimates. This marked HELE’s third-consecutive quarter of positive earnings surprises. In addition to new products, the company expects to fuel future earnings growth with expense reductions and possibly an acquisition. Analysts target 10% annual long-term growth for HELE. These shares are reasonably priced compared with other consumer product companies at a 13 times P/E multiple and an 11 times forward P/E multiple. My $30 price target for Helen of Troy shares is 30% above its closing price on Tuesday of $23.16.
National Presto Industries designs and markets pressure cookers, canners, deep fryers and similar products under the Presto brand name. The company also owns a defense business that manufactures ammunition and ordnance items, and an absorbent products business that produces private-label adult incontinence products and baby diapers. National Presto’s housewares and absorbent products are sold directly to retailers and independent distributors. Its ammunition and ordnance products are sold to Department of Defense contractors.
Unlike most small appliance manufacturers, National Presto appears to be benefitting from the current economic downturn. This is because consumers are purchasing its cooking appliances to save money by preparing more meals at home. The company is also increasing volume and reducing expenses in its defense business. In 2005, National Presto was selected as one of two prime contractors on a five-year contract to supply the U.S. Army with 40mm practice and tactical ammunition. National Presto estimates deliveries to the Army over the life of the contract will exceed $550 million. Through March 2008, the company has received revenues totaling $454 million under this contract.
National Presto produced impressive financial results in 2007 with sales up 38% year over year to $420.7 million from $304.7 million and per-share earnings up 79% to $3.80 from $2.12. Although sales growth slowed to 6% in the first six months of 2008 to $188.7 million from $177.3 million, earnings growth remained robust due to margin gains and an improved product mix. Per share earnings rose 32% year over year in the first six months of 2008 to $2.31 from $1.75. National Presto doesn’t provide earnings guidance and no analyst estimates are available for this company. Given National Presto’s double-digit earnings growth, we think these shares are very attractively priced at only a 13 times P/E multiple. My price target for National Presto is $110, which is 41% higher than Tuesday’s closing price of $77.97.
Helen of Troy Limited produces personal care products such as hair dryers, curling irons, shavers, hair accessories and skin care products under well-known brand names such as Vidal Sasson, Revlon, Sunbeam, Pro Touch and Salon Creations. The company added housewares to its product line in 2004 by acquiring OXO International, a manufacturer of kitchen tools and cutlery. HELE’s houseware sales grew nearly 20% last year and offset slower growth in the personal-care products segment. While only about a quarter of the size of its personal-care business, the housewares division contributed 43% of HELE’s 2008 operating income.
The company markets its products through mass merchandisers, drug chains, groceries and specialty stores. Product line extensions were a major driver of earnings growth last year, with FY 2008 per-share earnings improving 22% to $1.93 from $1.58. HELE introduced 526 new products in 2008 and has an additional 389 new products in its 2009 development pipeline.
The company surprised analysts in the first quarter of FY 2009 by reporting non-GAAP per-share earnings of $0.42, up 31% from last year’s first quarter and 40% above analyst estimates. This marked HELE’s third-consecutive quarter of positive earnings surprises. In addition to new products, the company expects to fuel future earnings growth with expense reductions and possibly an acquisition. Analysts target 10% annual long-term growth for HELE. These shares are reasonably priced compared with other consumer product companies at a 13 times P/E multiple and an 11 times forward P/E multiple. My $30 price target for Helen of Troy shares is 30% above its closing price on Tuesday of $23.16.
National Presto Industries designs and markets pressure cookers, canners, deep fryers and similar products under the Presto brand name. The company also owns a defense business that manufactures ammunition and ordnance items, and an absorbent products business that produces private-label adult incontinence products and baby diapers. National Presto’s housewares and absorbent products are sold directly to retailers and independent distributors. Its ammunition and ordnance products are sold to Department of Defense contractors.
Unlike most small appliance manufacturers, National Presto appears to be benefitting from the current economic downturn. This is because consumers are purchasing its cooking appliances to save money by preparing more meals at home. The company is also increasing volume and reducing expenses in its defense business. In 2005, National Presto was selected as one of two prime contractors on a five-year contract to supply the U.S. Army with 40mm practice and tactical ammunition. National Presto estimates deliveries to the Army over the life of the contract will exceed $550 million. Through March 2008, the company has received revenues totaling $454 million under this contract.
National Presto produced impressive financial results in 2007 with sales up 38% year over year to $420.7 million from $304.7 million and per-share earnings up 79% to $3.80 from $2.12. Although sales growth slowed to 6% in the first six months of 2008 to $188.7 million from $177.3 million, earnings growth remained robust due to margin gains and an improved product mix. Per share earnings rose 32% year over year in the first six months of 2008 to $2.31 from $1.75. National Presto doesn’t provide earnings guidance and no analyst estimates are available for this company. Given National Presto’s double-digit earnings growth, we think these shares are very attractively priced at only a 13 times P/E multiple. My price target for National Presto is $110, which is 41% higher than Tuesday’s closing price of $77.97.
About the Author
Contributing author Lisa Springer is an equity research analyst with nearly 20 years of investment research experience.
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