A brief evaluation of Hanson Private Label (HPL) will reveal signs of an excellent, growing, and well run company. There are no danger signs within the financials of HPL. The following have seen growth with every passing year: revenue, current assets, owner’s equity, net working capital, and sales (even groceries). The following categories have grown every year with the exception of 2005, where a higher than usual COGS caused a dip in gross margin – 15% versus a historically high teen’s percentage: Gross Profit, EBITDA, EBIT, and Net Income. Utilization rates are high. During this same period, long term debt trended downward with decreases every year. Sales across HPL retail channels increased every year over year in the following categories: mass merchant, club, drug, dollar stores, convenience stores, and miscellaneous distributors. Groceries increased or held steady during this time, and never decreased. Market share increased in slight increments during 2005-2007. During the five year period 2003-2007, total assets rose over $40M, profits climbed steadily from $98M (2003) to 122.5M (2007), net income has increased four of five years, and sales have outgrown the market. Additionally, long term debt has been cut nearly 50% over the last 5 years. The cumulative cash flows over the same period have been positive while the company has been able to pay dividends every year.
It is a safe assumption to say that HPL is an excellent business and has shown maintainable, measured, and sustainable growth. The only potential downside is that the company, with high utilization rates, is reaching production capacity, and addition of more accounts will necessitate investment in expansion.
There are several strategic and economic considerations that influence the viability of this project for Hansson. First, analysis of the projected future cash flows provide indications as to if the project is economically desirable. The project’s future cash flows...
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