Krones AG (KRNNF, Financial) is a German manufacturer of about every product you’d need to bottle or can, beer, soft drinks, water or liquor. The stock seems reasonably priced in a growth industry.
The company has 31.59 million shares, the stock trades at 81.50 euros ($90.1), and the market cap is 2.574 billion euros. Earnings per share were 4.98 euros in 2015, so the price to earnings ratio is 16.3. The dividend is 1.45 euros a share and the dividend yield is 1.77%. It takes $1.11 to buy one euro.
Sales were 2.48 billion euros in 2011 and grew to 3.17 billion euros in 2015. Europe represents 35.9% of sales, Russia 2.6%, Middle East/Africa 13.6%, AsiaPacific 15.4%, China 9.1%, North/Central America 13.8%, and South America and Mexico 9.6%. Alcohol accounts for 34.8% of sales, foods and chemicals 10.9% and non-alcoholic beverages 54.3%. So you can see Krones is geared towards drinks. It’s very globally diversified too. Looking at a bar chart presentation by management, it seems that there has been 2% to 4% in about every country in every sector.
Return on equity is 21.3%. The balance sheet is strong with 215 million euros in cash and 802 million euros in accounts receivables. This is to 65 million euros in loans and 187 million euros in accounts payables. Very solvent.
Krones is everything from soups to nuts in brewing: milling, mashing, boiling, yeast management, cleaning and storing beer. Krones also makes the equipment used in making soda pop, liquor, drinking water, milk and juice. The packing division bottles and cans these products. The company has products that are involved in the process, all the way to putting on labels.
This link will take you to a page on various microbrewers that buy Krones equipment: Parallel 49, Founders and Breckenridge, to name just a few. Soft drink clients include: Ocean Spray, Coca-Cola Brazil, Suntory and Coca-Cola Egypt. Giants like Diageo and SABMiller, now part of Inbev, are clients too.
As of the first six months, sales were up 3.8% to 1.5603 billion euros, Ebitda up 2.2% to 147.2 million euros and earnings per share up 2.2% to 2.37 euros. Free cash flow was a loss of 169.2 million euros because of investments. For 2015, free cash was 65 million euros.
A report by BCC Research states that food equipment demand will grow by 4.2% a year until 2030. I don’t find that prediction to be off. Even in a bad economy, people still eat. In the same report, it names several restaurant equipment manufacturers. I would stay clear of this particular group as I’ve noticed that slightly used equipment is selling at a fraction of the new. Back in August, Krones bought 80% of a firm in Florida. Management did the old Buffett trick—allow the original owner to keep a 20% stake so as to still be involved in the firm.
The microbrewing industry has been on a roll. According to the Brewers Association, volumes were up 13% and dollar volumes were up 16% in 2015. That’s incredible. Krones should continue to grow as long as the bubble does not pop. One would think that the Inbev/SAB Miller should be good for microbrewers. Most beers that you see are either owned by Inbev or Heineken. If not those two, often times, they are microbrewers. Perhaps the consumer is looking for something new and that is why microbrewers are doing well.
The Kronseder family owns 51.55% of outstanding shares. I found the stock by looking at Tweedy Browne (Trades, Portfolio)’s holdings.
Krone’s stock is reasonably priced and sales have been steadily increasing. The global population will continue to need food and drink. I like Krones. I’d like to study it a little more, but it could be a pick.
Disclosure: We own shares of Heineken Holdings.
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