Thomas J. Sudyka, Jr. is portfolio manager at Lawson Kroeker Investment Management, Omaha, which manages $435 million, and co-portfolio manager of the $28 million LK Balanced Fund (LKBLX). LKFunds.com
This week’s Stock of the Week is a specialty industrial company that is repositioning itself for better revenue.
Orion Engineered Carbons S.A. (OEC) produces carbon black—a very fine powder derived from oil, that has numerous important industrial applications. Carbon black is used to color tires, ink and plastic, is important in printing and polymer manufacturing, and is needed to make building materials, battery electrodes, agricultural chemicals, textiles and more.
Several big chemical companies make carbon black, but Luxembourg-based Orion is a pure play in the field. Germany is Orion’s top market, with the US second. Investors have been treating Orion as a commodity producer, and that has been accurate in the past—but the company is repositioning itself.
The type of carbon black used in tires is indeed a commodity and still represents about two-thirds of the firm’s sales. But specialty carbon black—a different form of the product, used in ink, paint and plastic—now accounts for about 35% of Orion’s revenues and roughly 75% of its profits.
This is a capital-intensive business, making it hard for other firms to enter it or expand quickly. Orion is well-managed financially, paying down $50 million to $100 million of debt per year. A big spike in oil prices would likely hurt the company but seems unlikely in the short-to-medium term. Revenue was $1.2 billion in 2016 and will likely be reported as $1.4 billion for 2017 and $1.42 billion for 2018. The dividend of $0.79/share/yr. recently yielded 3.4% and appears secure.
Fiscal year: December. Earnings per share: 2018 est./$1.90…2017 est./$1.75…2016/$1.44.
Thomas J. Sudyka, Jr., is portfolio manager at Lawson Kroeker Investment Management, Omaha, which manages $425 million, and co-portfolio manager of the $27.3 million LK Balanced Fund (LKBLX). LKFunds.com