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MOD-PAC CORP. Message Board

  • dtejd1997 dtejd1997 Nov 2, 2011 7:41 AM Flag

    Headwinds MPAC is fighting

    Hey all:

    Latest quarterly results just got released. At first glance, they are a mild let down.

    Earnings were $.18/share vs. $.28/share in the year ago period. Sales were up 14%, and EBIDTA were up marginally.

    HOWEVER, MPAC is now starting to encounter several headwinds:

    A). TAX LOSS carry forward is now exhausted. MPAC is now going to be paying full taxes on their earnings. This is a big deal.
    B). The price increases of raw materials is starting to compress margins, paper & ink going up in price. It appears that management is only able to pass on a limited portion of the price increase, rest is coming out of earnings.
    C). MPAC is having to spend more on equipment repair & replacement. Remember, most of their equipment has been depreciated. HOW MUCH FREE CASH FLOW IS THERE GOING TO BE?

    One very nice item to note: 182K shares were repurchased in the latest quarter. That is approximately 5% of the float.

    My take is that any progress that management makes is negated by:

    A). paying full taxes on earnings.
    B). using most of the cash flow to replace/repair physical plant & equipment.

    Any thoughts?

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    • The second half of the year ist the stronger half for MPAC. Anticipating a Q4 similar or better than the just reported Q3, this company will generate EPS of $0.60-0.70! The tax matter is not a headwind, its a normal condition that "arrived" already with Q1/2011. The stock should trade at least around book value and a PE of 10. This would easily justify a price of $7. Given the growth, which should result in higher earnings over the long run, the stock could move up towards $10 next year. A no brainer below $6!

      • 1 Reply to maturadoratum
      • Hello:

        I don't want to argue too much...

        But you have to remember that a year ago, MPAC was paying little to no taxes. From here on out, earnings are going to be reduced about 30%. So, in order to "equal" the last years earnings, THIS year's earnings have to increase by about 30%. That is a difficult thing for any company to do.

        Of course MPAC has a duty and obligation to pay taxes when they are due.

        If MPAC is going to trade for book value, they need to making a decent return on it. I would guess that would have to be about 10% or so. The trailing twelve month earnings are about $.50/share as of today. At this rate, we WON'T trade for book value. There is going to HAVE to be substantial improvement in 4th quarter earnings to account for the $.10 "reduction" in the latest quarterly earnings.

        I hope you are right, I got a good position in MPAC. I also want it to trade for book, OR MORE, but I think it might take some amount of time.