Oklahoma Inc.: Alignment with major retailers boosts Orchids Paper [The Oklahoman, Oklahoma City]
(Daily Oklahoman (Oklahoma City) Via Acquire Media NewsEdge) Nov. 03--PRYOR -- Orchids still blooms among Oklahoma's public companies.
The tissue and paper towel maker in Pryor landed at No. 9 in this year's Oklahoma Inc. -- the ninth-best publicly traded stock in the state.
Orchids Paper Products makes and sells bulk tissue paper -- known as parent rolls -- and converts parent rolls into bathroom tissue, paper towels and paper napkins for the consumer or "at home" market. Sales are nationwide, but mostly within 500 miles of Pryor, mainly through discount retailers.
The company sells products under the brand names Colortex and Velvet, but mainly through store chains' private labels -- and private labels are gaining market share, according to analyst John Nobile of New York small-cap brokerage Taglich Brothers Inc.
"Private label products continue to increase in popularity due to their improved quality and lower price compared to national brands," Nobile said in a recent research note.
Private-label toilet paper sales, for example, have boosted market share from 13.1 percent to 17.6 percent since 2007, he said. Further, Target and Walmart are focusing more on private-label products for their higher margins, Nobile said.
For its part, Orchids is realigning sales and marketing away from bulk sales and toward value-added products. Nobile said the company is on pace to increase converted product tonnage by 21 percent and decrease parent roll sales by 55 percent this year and that the trend should continue in 2014.
Orchids aims to get out of bulk sales completely, Nobile noted, and to that end installed a new converting line in 2010 and invested in equipment and improved operations in 2011 to develop higher-quality products.
Last year, manufacturers of papermaking equipment in Italy honored Orchids Paper with an award, and in September, Dollar General awarded the company with its 2012 Pride Award for Private Label Vendor of the Year.
"Orchids plans to expand into other retail channels such as grocery stores, mass merchandise and other discount retail sectors," Nobile said. "Initial efforts to expand into these other channels previously had limited success due to capacity constraints and the inability to produce higher-grade products. However, these shortcomings have been partly overcome by the additional converting line and new product initiatives -- higher-grade products."
Orchids position and increased earnings estimates led Nobile to reiterate the company's "speculative buy" rating in August and to increase his 12-month price target from $25.50 to $30. Orchids trades under the ticker symbol TIS on the New York Stock Exchange.
However, Nobile noted, with just three customers accounting for 74 percent of converted product sales in 2012 -- Dollar General, Family Dollar and Walmart, and on order, not by sales contract -- "any substantial decrease or delay in sales to one or more of Orchids' key customers would harm sales and financial results."
Further, competitors have moved into Orchids' operating region, reducing competitive cost advantages and putting pressure on selling prices, Nobile said.
Nonetheless, Orchids smelled sweet in the year ending June 30, the period analyzed by suburban Denver-based S&P Capital IQ for ranking in Oklahoma Inc., although the No. 9 placement was down from No. 3 last year.
Orchids saw its earnings per share rise 13.9 percent over the year. Revenues rose 2.8 percent and total return per share increased 55.9 percent over the same period. The $206.8-million company saw total revenues of $105.6 million and net income of $10.7 million during the period.
The second quarter of 2013 was especially positive.
Orchids reported record total net sales and record converted product net sales. Converted product shipments were 2,080,000 cases, surpassing the previous record of 1,864,000. Net income was $3.1 million, an increase of $906,000, or 41 percent, compared with $2.2 million of net income in the same period of 2012.
"We continued to exhibit solid performance during the second quarter of 2013," Robert Snyder, president and CEO, said in a statement. "Our achievement of record net sales and converted product net sales in the second quarter of this year follows on the heels of a strong first quarter in which we also equaled or exceeded our previous sales records."
Snyder added, "As evidenced by our record sales achievements in the quarter, our previously announced new business is coming on line within our expectations. We anticipate converted product shipments in the second half of 2013 of an annualized run rate between 8.6 million and 9.1 million cases.
(c)2013 The Oklahoman
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