Cascade Corp. CAE
December 18, 2007 - 5:09pm EST by
broncos727
2007 2008
Price: 46.83 EPS
Shares Out. (in M): 0 P/E
Market Cap (in M): 541 P/FCF
Net Debt (in M): 0 EBIT 0 0
TEV: 0 TEV/EBIT

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  • Manufacturer
  • Earnings Miss
  • High Barriers to Entry, Moat
 

Description

Tired of sifting through small, leveraged and domestic specialty financial companies?  Not that interested in retailers?  Chinese commodity plays not your forte?  A little worried about this whole sub-prime thing that everyone keeps talking about?  Let me introduce Cascade Corp, symbol: CAE.   They don’t slice and dice mortgages.  It is not a smoldering cigar butt. They don’t sell clothing to a fashion conscious consumer segment.  There isn’t a need for any activist to invest alongside you.  This is a company that actually makes a product.  And they have a whole menu of products that they sell worldwide.  In fact, they are so good at what they do, that they no longer have any real North American competition.   

 

Cascade is a world-class company being offered by the market at a good price.  Based in Fairview, Oregon (near the Portland airport), Cascade manufactures an extensive range of materials handling load engagement products that are widely used on lift trucks and, to a lesser extent, on construction and agricultural vehicles. 

 

A little background.  Most forks for the lift truck industry are used in conjunction with wooden pallets.  Wooden pallets present a wide array of problems.  Pallets are typically made of red oak, which has the ability to create terrific warehouse fires.  Additionally pallets create sanitation concerns for the food industry.  For instance they create perfect nesting habitats for mice and rats.  Pallets are difficult to store and are an additional operating expense.  They add weight and cubage to the container, truck body, or rail car.  Most importantly product moved using conventional pallets is often clumsy and results in damaged merchandise. 

 

Cascade produces two commodity products; regular forks and side shifters.  But their bread and butter is specialty lift truck attachments.  How specialized?  They have one for holding wine barrels, one for beer kegs, one for newspaper rolls, one to help open a boxcar door, and one to carry marble slabs – to name a few. 

 

Fork lifts and specialty lift truck attachments are very much tied to economic conditions, and as such the market is cyclical.  North American lift truck unit shipments are down 13% in the third quarter compared to the same quarter last year.  Conversely, Europe and China are both experiencing 20% upticks.  Note to self: Start looking at lift truck production numbers for hints on how various economies are fairing.

 

Cascade is the only company in the world to offer a global material handling solution to their clients.  Cascade has virtually no competition in North America as their market domination has slowly driven off competition over the years.  Europe competition is a different scenario, and currently competition is fierce.  But they plan on tackling Europe with the same strategy they pursued in North America, more on that a little later.  Their factories employ state of the art robotics and their production is highly automated.   Most of their competitors are lift truck manufacturers that do not focus on the fork attachments with the same gusto that Cascade does.  Their focus is on lift attachments that employ hydraulics, and they are good at it.

 

Currently the stock is near a 52 week low.  The near-90 high price earlier this year, on the other hand, was probably the overwrought handiwork of Reno-based momentum players. They had a recent earnings miss, and their stock always reacts strongly to a consensus miss or consensus beat.  We think the recent earnings miss, coupled with fears of a North American recession (a realistic scenario) has put the stock on sale at a good price.  Their recent initiatives have positioned them well to both produce and sell in China and to export from China into Europe.  They have a goofy reporting calendar, which ends in January 08.  So they are already 3 quarters of the way through 2008.  For “2009” the earnings consensus is somewhere around 4.50 per share. 

 

So the stock is currently trading at 10 times future consensus earnings.  Not bad.  But the CAGR for Cascade’s revenues is 13.63% for the last five years.  In the same time net income has increased from 4.1 million to 45.4 million.  These were good years for the lift truck industry, to be sure.  How to factor in a North American recession is the crucial variable.  But things might be different now.  Cascade has been positioning itself in Asia and Europe for the last several years.  They are no longer confined to North America.   Regardless, the thesis here is that a recession is baked into the current price and then some.

 

They generate an excellent return on assets, and have demonstrated excellent growth.  We think at this price they are very attractive from a price to earnings and a price to sales viewpoint.  We think that their unique products offer them a moat of sorts.  They have an extensive database of designs that allow them to quickly and efficiently develop slightly different products customized to their clients needs.  This essentially is a massive barrier to entry for would be competitors.

 

The other concern (beyond a recession) in the market, and alluded to earlier, is the lack of progress being made in Europe.  2009 will likely not produce any noticeable improvements on this front.  Their strategy in Europe is simple.  Give their clients exactly what they want and do it better than the competition.  This worked well in North America.  For Europe it might be summarized as a “cultural difference” where staff at all levels of Cascade have not gone the extra mile to win business.  Management thinks the problem can be solved and remains undeterred.   Analysts covering this development have grown impatient with their initiatives thus far.  But the good news is that the price already reflects this and at this point offers mostly upside potential. 

Catalyst

Success in Europe is possible. Continued growth in Asia offsetting declines in North America. Fear of upcoming recession subsiding.
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    Description

    Tired of sifting through small, leveraged and domestic specialty financial companies?  Not that interested in retailers?  Chinese commodity plays not your forte?  A little worried about this whole sub-prime thing that everyone keeps talking about?  Let me introduce Cascade Corp, symbol: CAE.   They don’t slice and dice mortgages.  It is not a smoldering cigar butt. They don’t sell clothing to a fashion conscious consumer segment.  There isn’t a need for any activist to invest alongside you.  This is a company that actually makes a product.  And they have a whole menu of products that they sell worldwide.  In fact, they are so good at what they do, that they no longer have any real North American competition.   

     

    Cascade is a world-class company being offered by the market at a good price.  Based in Fairview, Oregon (near the Portland airport), Cascade manufactures an extensive range of materials handling load engagement products that are widely used on lift trucks and, to a lesser extent, on construction and agricultural vehicles. 

     

    A little background.  Most forks for the lift truck industry are used in conjunction with wooden pallets.  Wooden pallets present a wide array of problems.  Pallets are typically made of red oak, which has the ability to create terrific warehouse fires.  Additionally pallets create sanitation concerns for the food industry.  For instance they create perfect nesting habitats for mice and rats.  Pallets are difficult to store and are an additional operating expense.  They add weight and cubage to the container, truck body, or rail car.  Most importantly product moved using conventional pallets is often clumsy and results in damaged merchandise. 

     

    Cascade produces two commodity products; regular forks and side shifters.  But their bread and butter is specialty lift truck attachments.  How specialized?  They have one for holding wine barrels, one for beer kegs, one for newspaper rolls, one to help open a boxcar door, and one to carry marble slabs – to name a few. 

     

    Fork lifts and specialty lift truck attachments are very much tied to economic conditions, and as such the market is cyclical.  North American lift truck unit shipments are down 13% in the third quarter compared to the same quarter last year.  Conversely, Europe and China are both experiencing 20% upticks.  Note to self: Start looking at lift truck production numbers for hints on how various economies are fairing.

     

    Cascade is the only company in the world to offer a global material handling solution to their clients.  Cascade has virtually no competition in North America as their market domination has slowly driven off competition over the years.  Europe competition is a different scenario, and currently competition is fierce.  But they plan on tackling Europe with the same strategy they pursued in North America, more on that a little later.  Their factories employ state of the art robotics and their production is highly automated.   Most of their competitors are lift truck manufacturers that do not focus on the fork attachments with the same gusto that Cascade does.  Their focus is on lift attachments that employ hydraulics, and they are good at it.

     

    Currently the stock is near a 52 week low.  The near-90 high price earlier this year, on the other hand, was probably the overwrought handiwork of Reno-based momentum players. They had a recent earnings miss, and their stock always reacts strongly to a consensus miss or consensus beat.  We think the recent earnings miss, coupled with fears of a North American recession (a realistic scenario) has put the stock on sale at a good price.  Their recent initiatives have positioned them well to both produce and sell in China and to export from China into Europe.  They have a goofy reporting calendar, which ends in January 08.  So they are already 3 quarters of the way through 2008.  For “2009” the earnings consensus is somewhere around 4.50 per share. 

     

    So the stock is currently trading at 10 times future consensus earnings.  Not bad.  But the CAGR for Cascade’s revenues is 13.63% for the last five years.  In the same time net income has increased from 4.1 million to 45.4 million.  These were good years for the lift truck industry, to be sure.  How to factor in a North American recession is the crucial variable.  But things might be different now.  Cascade has been positioning itself in Asia and Europe for the last several years.  They are no longer confined to North America.   Regardless, the thesis here is that a recession is baked into the current price and then some.

     

    They generate an excellent return on assets, and have demonstrated excellent growth.  We think at this price they are very attractive from a price to earnings and a price to sales viewpoint.  We think that their unique products offer them a moat of sorts.  They have an extensive database of designs that allow them to quickly and efficiently develop slightly different products customized to their clients needs.  This essentially is a massive barrier to entry for would be competitors.

     

    The other concern (beyond a recession) in the market, and alluded to earlier, is the lack of progress being made in Europe.  2009 will likely not produce any noticeable improvements on this front.  Their strategy in Europe is simple.  Give their clients exactly what they want and do it better than the competition.  This worked well in North America.  For Europe it might be summarized as a “cultural difference” where staff at all levels of Cascade have not gone the extra mile to win business.  Management thinks the problem can be solved and remains undeterred.   Analysts covering this development have grown impatient with their initiatives thus far.  But the good news is that the price already reflects this and at this point offers mostly upside potential. 

    Catalyst

    Success in Europe is possible. Continued growth in Asia offsetting declines in North America. Fear of upcoming recession subsiding.

    Messages


    Subjectimpact of a bad economy?
    Entry12/18/2007 06:18 PM
    Memberbibicif87
    Interesting idea. I see that in the last recession sales went from a peak of $408M in FY'99 to $252M in '02, but ebitda didn't drop off that badly, from $58M to $42M. If you are wrong, and we do have a recession over the next year or two, how badly do you think its numbers would be hurt? It seems like they did a great job of controlling costs in the last one, but perhaps now, with a larger world footprint, might not it have a higher percentage of fixed costs that can't be cut? Just trying to get a handle on the downside--looks like a nice little company otherwise.

    Subjectimpact of a bad economy respon
    Entry12/18/2007 06:48 PM
    Memberbroncos727
    Don't get me wrong it seems like the possibility of a recession (in North America) is quite real. I will put some more thought into this and try to add something later. But for now I would point out that in 99 they had 2100 employees and in 02 they only had 1400 employees. They were very responsive to the recession by cutting costs, materials expense, and headcount. That said lift truck production in both Europe and Asia is currently up 20% while only N. America is down 13%. So from a worldwide perspective things are not that bleak and CAE has strategically positioned themselves globally. Current headcount, interestingly, is about 2100 - same as 99.

    SubjectRE: impact of a bad economy re
    Entry04/07/2008 03:42 PM
    Memberruby831
    Broncos,

    Curious to hear if you have any update on Cascade...I noticed the stock is trading at similiar levels to when you wrote it up.

    Thanks in advance.

    SubjectResponse to ruby831
    Entry04/08/2008 10:37 AM
    Memberbroncos727
    Ruby:

    There has been a lot of company specific news to digest. 4th quarter earnings last week with a conference call. They posted their 10k today. I am a little short on time at the moment to put together a summary of all of it. But I will hastily do my best. Europe continues to be a challenge. On the conference call they mentioned the only buyers of their assets in Europe would be their global competitors. Selling them any part of the operation or attempting to exit Europe would benefit their competition. They compete with these companies in Asia as well, so it would somehow affect their business there. They are still committed to Europe, but might be looking at some charges to net income over the next year from that segment. They spent a lot of money buying back stock. I havent checked the math, but one caller suggested it was the equivalent of an 11$ dividend. Price increases on materials is hurting their margins a little bit. They still forecast weak lift truck sales in N. America countered by strong sales in China and moderate sales in Europe. I posted this idea in December, and thankfully nothing material enough has occurred to alter my long term view here. They do a lot of business with Sun Hydraulics, SNHY. SNHY posts impressive numbers. I used to own SNHY. Given that they are in similar industries the valuation of SNHY no longer makes sense (to me at least) when compared to CAE.

    SubjectRE: Response to ruby831
    Entry04/10/2008 11:46 AM
    Memberruby831
    I appreciate the update.

    SubjectCASC acquired
    Entry10/22/2012 05:52 PM
    Memberbroncos727
    CASC has entered into a deal at 65$ cash. Trading was odd today, with a close of 64.97. Seems like the only people willing to pay that would be short sellers or someone that thinks a new buyer will emerge. Anyone have an opinion on that?
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