K-Tron: Record Earnings Amid Deep Recession


I first wrote about K-Tron (KTII) in May of 2008 and again in August 2008. The company was profiled favorably on Forbes and has been in the top 20 of the 200 Forbes Best Small Companies for the past 2 years. And for good reason, as the company announced its best quarter in history when it released earnings on March 9, 2009.

Press Release

“K-Tron’s 2008 results were the best in our history, representing a fourth straight year of record revenues and earnings. Our success in 2008 when compared to 2007’s record numbers was due to a very strong effort from our Size Reduction Group, including a full year’s contribution from Rader Companies, Inc. which we acquired in mid-September 2007, and increased sales to our Process Group customers in Europe and Asia.”

  • Record revenues for any quarter of $65.779 million, up 11.4 percent from $59.055 million in 2007;
  • Record operating income for any fourth quarter of $9.729 million, an increase of 4.3 percent compared to $9.331 million in 2007;
  • Record income before income taxes for any fourth quarter of $9.540 million, a gain of 7.7 percent over $8.858 million in 2007; and
  • Net income of $6.197 million and diluted earnings per share of $2.15, slightly below 2007’s record fourth quarter net income of $6.259 million and diluted EPS of $2.18, with the decline being due to a higher income tax rate in 2008’s fourth quarter (35.0 percent) versus the same period in 2007 (29.3 percent).

What is also impressive is its backlog. Their year end 2008 backlog ended at “$68.108 million which is down almost 8 percent from the end of the third quarter and 3.7 percent below 2007’s year-end order backlog of $70.712 million.”

A decrease of 3.7% in backlog in this environment is very impressive indeed.

Management

Despite having an outstanding quarter, the company has also announced a company wide wage and salary freeze and layoff of 43 employees. How many financially strong companies would announce a salary freeze and layoffs just after they’ve announced their best quarter? CEO’s on Wall Street would probably be too busy counting how many zeroes they could add to the end of their paycheck. Not so for K-Tron. Management seems to be always focused on what is best for the business.

In 2007, the CEO’s base salary was just over $500k, a bonus of $725k and options equaling a compensation of $1.45mil (0.5% of income) which is comparable, percentage wise, to other well managed companies such as UTX.

I am also a fan of any company that does not offer guidance and even more impressed if the company does not host conference calls.

May I be so bold as to claim that K-Tron is potentially a sleeping giant?

Disclosure

I own KTII at the time of writing.

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