Hand Tools and Cutlery Manufacturing
February 2011
University of Oregon (Student Research)
This report is published for educational purposes only by students
competing in the CFA Institute Global Investment Research Challenge.
Blount International Inc.
Ticker: NYSE: BLT
Price: $15.60
Recommendation: Hold
Price Target: $15.00
Earnings/Share Data
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2007A
2008A
2009A
$0.10
0.14
$0.23
0.21
$0.20
0.31
$0.36
0.14
$0.89
0.80
13.83x
11.86x
0.02
0.09
0.23
0.14
0.48
21.41x
2010E
0.18
0.22
0.20
0.22
0.82
19.07x
Year
P/E
Ratio
We recommend a HOLD on Blount International (BLT) under the premise that while the
company has strong financials and margins, it is fairly priced in the market and is trading in
an appropriate range at this time.
Key Statistics
52 Week Price Range
50-Day Moving Average
Average Daily volume
Beta
Dividend Yield
Shares Outstanding
$9.90-16.48
$15.89
204.2 thousand
Recent Highlights

Acquisition of SpeeCo: Blount acquired SpeeCo on August 10, 2010 for $91.7 million.
SpeeCo was a supplier of post-hole diggers, log splitters, and other farm and ranch products.
The purpose of the acquisition was to increase their product offerings. The company can
now offer SpeeCo’s products in areas where it was previously operating. Blount believes
there will be a large increase in sales due to the acquisitions of SpeeCo.

August 2010 Debt Restructuring: Blount decided to restructure its long term debt
obligations in August 2010. It decided to do this for a number of reasons. Blount now has a
much lower cost of debt. It also has plans to continually payoff the principal of this loan
when their cash position is able to. The company also entered into debt covenants to
improve their capital structure.

Sale of Gear Products, Inc.: Blount sold Gear Products, one of its subsidiaries, in
September 2010. They received cash proceeds of $24.8 million. Gear Products was a
manufacturer in the utility, construction, forestry, marine, and mining markets. Their
products included mechanical power transmission components and sold these to OEM’s.
Management has guided that any extra cash from this sale that is not used for business
operations will be used to reinvest in the company, payout dividends, or pay-off any long
term debt.
1.38
N/A
48.4 million
Market Capitalization
$752.2 million
Debt to Total Capital
32.70%
Stock Ownership
Institutional Holdings
98.20%
Insider Holdings
0.70%
Margins
Gross Margin (2009)
33.70%
Profit Margin (2009)
4.60%
Historical Prices - Blount International
$18.00
$16.00
$14.00
$12.00
$10.00
$8.00
$6.00
$4.00
$2.00
$0.00
Important disclosures appear at the back of this report
University of Oregon
Global Investment Research Challenge
Figure 1: 2009 Revenue Breakdown
Business Description
Construction
3%
FRAG
13%
February 2011
Incorporated in 1971, Blount is an industrial manufacturer of outdoor products. The
main products that it sells are saw chains, lawn-mower blades, concrete cutters, logsplitters, and other accessories for these products. It markets and sells these products
through multiple subsidiaries including Oregon, Carlton, Windsor, SpeeCo, etc. The
company has competed in these manufacturing markets for over 17 years, and currently
has about 3,500 employees.
Lawn and
Garden
15%
Forestry
69%
Source: Company Chart
Table 1: Worldwide Wood Production
(millions of tons)
2006
2007
2008
2009
5-yr CAGR
United States
427.8
413.1
374.2
326.7
-5.6%
Canada
241.0
221.1
193.2
166.8
-8.3%
European Union
458.0
476.6
433.2
396.7
-3.0%
Brazil
91.5
102.9
98.8
96.5
1.2%
Russia
96.1
106.5
100.1
83.8
-2.0%
China
4.2
4.6
4.9
4.1
3.3%
Total
1,318.6
1,324.7
1,204.4
1,074.6
-4.4%
Headquartered in Portland, Oregon, Blount operates all around the world. It has
multiple international distribution centers across five continents and owns four
manufacturing facilities located in China, U.S.A., Canada, and Brazil. This broad
operating range allows for Blount to sell its products to over 100 countries.
Revenue is generated exclusively through Blount’s outdoor products segment. This
segment accounted for 97% of overall revenue in 2009. 69% sales in the outdoor
product segment were made outside the U.S. in 2009. The other 3% was attributed to
Gear Products, which was recently sold in September of 2010.
One of Blount’s goals is to be a market leader in all the products it offers. To obtain this
goal its strategy is to expand its share in high growth niche markets, maintain
diversification in its product offerings, and expand its international presence in core
markets.
Source: IBISWorld Special Report
Figure 2: Projected Housing Starts (Thousands)
2,500
Blount operates primarily in the Hand Tool & Cutlery Manufacturing industry. This
industry consists of firms concerned with manufacturing metal cutlery, edge tools, saw
blades, hand saws, kitchen utensils, as well as pots and pans.
2,000
INDUSTRY DRIVERS
1,500
1,000
500
0
1976
Industry Overview and Competitive Positioning
1986
1996
2006
2016
Source: IBISWorld Special Report
Table 2: Historical Aluminum Prices
Year
Domestic Aluminum Prices
(cents per pound)
% Change
2005
2006
2007
2008
2009
2010
91
121.4
125.2
132.3
77.5
87
8.3
33.4
3.1
5.7
(-41.4)
12.3
Source: Nima Samadi (2010)
Table 3: Historical Steel Prices
Year
Domestic Steel Price
(Index)
% Change
2005
2006
2007
2008
2009
2010
159.7
174.1
182.9
220.3
165.2
173.5
8.5
9.0
5.1
20.6
(-25.1)
5.0
Wood Production and Housing
Wood production is the largest industry catalyst for chainsaw sales. Worldwide, the
industry has seen a decline due to unfavorable conditions caused by the 2008 financial
crisis. Additionally, regulation has increased over time and acres available for wood
harvesting have decreased. Overall, wood production has experienced a 5-year CAGR
of -4.4%. In the future, production is expected to increase as the construction industry
experiences increased levels of backlog.
An increase in construction acts as a primary driver for players in this market due to
positive correlation between housing growth and wood-cutting blade sales. Following
the housing downturn near the end of 2006, demand for hand tools and metal cutlery fell
rapidly. Fewer homes were being built while existing homes were not being sold—
greatly reducing demand for construction hand tools. The recent recession further
exacerbated this trend with fewer customers spending money on all types of
construction projects.
However, outlook for the housing market is more positive going forward. Starting in
2011, expected five-year CAGR for the housing market is expected to be around 20%
with the majority of growth expected to be seen in 2012. Although levels of growth will
not be as strong as pre-recession growth, they will act as a positive catalyst for industry
performance.
Input Prices
Major raw materials consumed in this industry include aluminum and steel. The ability
for firms to generate profit depends on their management of fluctuating materials prices.
It is difficult for firms to pass on cost increases to their customers in the short term.
Therefore, many firms use hedging techniques to keep prices stable. In 2008, steel
prices in the United States increased by nearly 20%. However, companies producing
goods made from steel were only able to increase prices by about 5%. This has caused
industry margins to decrease over the last few years.
Source: Nima Samadi (2010)
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RECENT DEVELOPMENTS
International Trade
In recent years, the US has seen an increase of imported outdoor products. Due to the
fact that hand tool and cutlery manufacturing lacks high production complexity, many
foreign firms have been able to import low-cost products into the United States and
offer competitive prices. As a result, imports have been rising year-after-year. While
imports accounted for only 36.1% of demand in 2006, this has grown to nearly 40% by
2010. This intense price competition is one of the main reasons that domestic producers
have has difficulty reacting effectively to rising input prices.
Figure 3: Competitive Factors
Industry Competition Factors
-Product Reputation
-Product Quality
-Brand Recognition
-Customer Relationship Management
-Product Line Breadth
Competitive Positioning
Competition in the Hand Tool & Cutlery Manufacturing industry is high and this
appears to be a condition that will likely remain steady. Firms that are able to meet the
stringent criteria evident in the factors mentioned above are likely to become industry
leaders. Firms that are able to attain high levels of quality will also find it easy to retain
customers due to higher perceived levels of service. Strong brand name recognition is
imperative to the acquisition and retention of large customers and the attainment of an
industry-leading position. It is important to note that, due to the nature of the industry,
the loss of even a single large customer can greatly reduce revenues; the overall impact
would be adverse operating results and cash flows.
-Product Innovation
Source: IBISWorld
Table 4: Barriers to Entry
Industry Barriers to Entry
Level
Competition
High
Concentration
Low
Life Cycle Stage
Decline
Investment Requirements
Low
Technology Change
Medium
Regulation and Policy
Medium
Industry Assistance
Medium
Source: IBISWorld
Furthermore, by striving toward product improvement/innovation, improved customer
service, and more efficient distribution systems, firms can better compete in the markets
for powered and non-powered tools. As mentioned before, many firms are experiencing
pricing pressures as a result of changing input costs. Specifically, it is difficult to reduce
prices because aluminum and steel prices have been on the rise. If firms cannot find
ways to cut costs/expenses, profitability will be greatly reduced in the industry, and
many firms will face find difficulty building market share. To succeed in the future, we
believe that firms need to procure quality inputs at low cost that will undercut the
competition. Specifically, offering competitive products in terms of design and function
at low prices can assist in building market share.
Barriers to Entry
Barriers in the Hand Tool & Cutlery Manufacturing industry are moderate and this
appears to be a condition that will likely remain steady. Many barriers that are often
found in various sectors of the economy are non-existent in the Hand Tool & Cutlery
Manufacturing industry. There are few, if any, significant government regulations or
licensing requirements that prevent firms in the industry from being successful. Despite
this, there are several factors that make successful entry difficult:
 Established Competitors: There are several firms operating within the industry that
hold large market share, including, Husqvana, Snap-on, and many large private
firms. Their larger size allows for benefits through economies of scale. Another
benefit is advantageous bargaining power over distributors and suppliers.
 Quality Expectations: Products in this industry are characterized by not only high,
but consistent quality. It is difficult for new entrants to match the quality offered
by large, established competitors.
Investment Summary
BLOUNT’S ACQUISITION ABILITY
Blount has over 17 years of manufacturing experience and it prides itself on the quality
of its products. With the acquisition of SpeeCo, Blount has poised itself to increase top
line growth into new markets. It plans to continue to acquire companies in the near
future and management has projected up to $200 million in acquisitions in the next four
years. These acquisitions could occur in North America, Europe, or Brazil which will
further their international distribution ability. Blount has a rare ability to acquire
companies that create beneficial synergies through time. This trend should continue
with the acquisition of SpeeCo.
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EXPECTED GROWTH IN FORESTRY INDUSTRY
The forestry industry is expected to grow for the next 4-5 years by 2-3%. Blount is the
largest manufacture of saw chains in the industry and forestry sales made up almost
70% of Blount’s revenue in 2010. Blount is well positioned to meet the increased
demand with its product offerings.
Blount has created favorable relationships with
over 30 OEM’s and 200 distributors in the forestry industry. Blount realizes the
importance of these relationships and will continue to create profitable relationships into
the future.
INNOVATIVE PRODUCTS
Blount created a New Product Development Group in 2007. The purpose of the group
is to be at the fore-front of new technology and products entering their operating
markets. Thirty engineers and technicians make up this innovation group, and their jobs
are to ensure revolutionary breakthrough products. The recent products this group has
produced are the PowerSharp, PowerGrit, Wall Saw, and sugar cane cutting system.
This innovation focus group is crucial to future growth in the industry.
Figure 4: Saw Chain Market Share (Worldwide)
All Others
6%
US Private
Competitors
33%
Blount
Products
61%
Source: Blount Company Presentation
WORLDWIDE MANUFACTURING
Blount has manufacturing capabilities in the U.S.A., Canada, Brazil, and China. One
main advantage of their manufacturing ability is the favorable market share they enjoy
in the saw chain market. Blount proudly states that they are the largest saw chain
manufacturer in the world. Blount is also planning on entering Eastern Europe with a
manufacturing facility. Blount’s broad range of manufacturing locations allows them to
distribute products across the world. This strength in its distribution network allows
Blount to acquire new products and sell them all over the world increasing top line
growth.
BLOUNT INTERNATIONAL: HISTORICAL PRICES AND EVENTS
$18
$16
September 30, 2010
Sale of Gear Products
$14
$12
$10
$8
August 10, 2010
Acquisition of SpeeCo
$6
5-Year low due to
economic recession
$4
$2
$0
Valuation
DISCOUNTED CASH FLOW
Acquisitions Lead Top-Line Growth
Blount has publicly stated that they anticipate $100-200 million in acquisitions in the
next four years. A large majority of company growth stems from these acquisitions,
which in turn expands company market share. Additionally, positive catalysts such as
rising demand for wood product will expand organic growth. We project that
acquisitions will have a strong impact on growth for both chainsaw components and
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February 2011
outdoor equipment as the acquisitions will have a broad focus into the company’s most
lucrative product lines. Furthermore, past acquisitions have indicated that the company
is efficient at integrating synergies and quick to realize revenue gains from these
acquisitions. By evaluating the company’s potential, we believe the company will
experience around 8% compounded annual growth from its chainsaw components and
15% compounded annual growth from its outdoor equipment in the next five years.
Value Chain Optimization Reduces Costs
Blount partakes in continuous cost-reduction strategies that have allowed the company
to maintain higher margins compared to the industry. In order to maintain these
margins, Blount has incorporated programs focused on inventory management,
integrating acquisition synergies, and supplier/distributor relationships. The company
has indicated that these programs have provided competitive improvements to the
company’s value chain and the programs are expected to further develop company
efficiency going forward. Over the next ten years, we expect these improvements to
provide about 2% cost reduction on goods sold and 1% cost reduction on administrative
costs.
Long-Term Operations
Acquisitions will be a fundamental characteristic of Blount’s business going forward.
However, growth in the industry is limited to a combination of catalysts driven by
construction with wood products, and lawn-care machines. In perpetuity, we expect
Blount’s business to grow around 3%, a rate lower than forecasted international GDP
growth. Although Blount will be able to capture additional market share through
continual acquisitions, growth will be limited by population growth, demand for lumber,
and demand for lawn-care products. While realizing that in perpetuity wood products
may be replaced by other building materials, we feel that for valuation purposes,
Blount’s acquisition history will allow it to remain a competitive player in the hand-tool
industry.
DCF Indicates Fair Valuation
After analyzing our discounted cash flow projections, we see little deviation from the
current price, thus indicating a fair valuation. We assumed a ten year risk-free rate,
relevant to our usage of a ten year DCF. Beta was calculated regressed the S&P 500 in
a 5-year monthly time horizon and then adjusted using the Vasicek adjustment formula
while incorporating a peer group to calculate an industry beta of 1.47. Overall, we feel a
WACC of nearly 9% accurately estimates the company’s cost of equity and debt. Under
these assumptions, we feel that the DCF indicates that the company is fairly valued by
the market which leads us to recommend a HOLD.
Table 5: DCF Assumptions
Assumption
Tax Rate
Risk Free Rate
Beta
Market Risk Premium
D/E Structure
Cost of Debt
WACC
Value
34.0%
3.4%
1.38
6.0%
48.6%
4.8%
8.9%
Source: Student Estimates
(in millions)
Valuation Summary
PV of Terminal Value
tDiscounted FCF Projected
yFirm Value
Less: Long-Term Debt
SEquity Value
Diluted Share Count
Prices Computed
Current Price BLT
Implied Price BLT (rounded)
Value
$744.4
$403.6
$1,148.0
$367.0
$781.0
48.4
$15.60
$16.10
Notes and Explanation
Calculated from 2021-perpetuity using a 3% growth rate
Calculated using the assumed WACC
65% from terminal value, 35% from DCF
Current debt levels (most recent quarter)
Available to shareholders
Diluted share counts assume all options are exercised
As of February 1, 2011
About 3% undervalued via DCF valuation method
Sensitivity Analysis for Assumptions
The value of Blount as estimated through our DCF relies on a number of key
assumptions. All of those assumptions are contributing factors to our WACC. To
reflect possible changes in WACC, we decided to create various scenarios which would
cause the WACC to rise or fall. These scenarios include variability in both the
company’s expected growth as well as external factors that would play a key role in
determining a discount factor.
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Risk
Impacts
Growth Potential
Changes Revenue Forecasts
Company Debt
Changes D/E Structure
Tax Policy
Changes Effective Tax Rate
Interest Rates
Financing Costs Change
Market Risk
Fundamental Risks of Market Change
Average Prices Based on Potential Factors
Positive
Turnout
$2.70
$2.80
$0.30
$1.60
$2.70
$18.10
Mean
Projection
$16.10
Negative
Turnout
-$2.20
-$2.20
-$0.20
-$1.30
-$2.20
$14.50
*Prices calculated based on 10% fluctuations.
Table 6: WACC Sensitivity
Implied Price
(rounded)
$21.30
$18.50
$16.10
$14.20
$12.50
WACC
7.9%
8.4%
8.9%
9.4%
9.9%
Deviation from
Price
36.79%
18.53%
3.40%
(-9.29)%
(-20.13)%
Source: Student Estimates
On average, positive changes would indicate an undervaluation of about 16%, whereas,
a negative change in factors would suggest an overvaluation of about 7%. Although this
analysis is more skewed towards undervaluation, we are confident that the company
falls along the mean and is fairly valued.
To reiterate the risks, we also designed a sensitivity analysis based completely on the
WACC value. Again, skewness is more heavily weighted towards undervaluation.
However, we feel that negative external factors are more likely to come to fruition due
to the current levels of interest rates and relatively low market risk premiums.
MARKET ANALYSIS
Table 7: Peer Group Multiples
EV/
Revenue
2.1 x
1.3 x
1.9 x
1.5 x
1.2 x
1.2 x
EV/Gross
Profit
5.9 x
5.0 x
5.4 x
3.1 x
3.6 x
4.3 x
P/E
Ratio
20.9 x
21.4 x
29.5 x
Outlier
20.4 x
21.9 x
Minimum
1st Quartile
Mean
Median
3rd Quartile
Max
1.2 x
1.2 x
1.5 x
1.4 x
2.0 x
2.1 x
3.1 x
3.5 x
4.6 x
4.7 x
5.5 x
5.9 x
20.4 x
20.6 x
22.8 x
21.4 x
25.7 x
29.5 x
16.0 x
16.2 x
19.5 x
16.9 x
25.3 x
28.0 x
Selected Multiple
1.3 x
4.7 x
23.6 x
21.1 x
Comparable Company
Deere & Company
Metso Co.
Stanley Black & Decker
Snap-on
Toro Co.
Husqvarna
EV/FCF
Outlier
16.0 x
28.0 x
Outlier
17.3 x
16.6 x
Source: Student Estimates and Company Financials
Table 8: Implied Price from Market Analysis
Weights
Implied Price
EV/Revenue
Multiple
25%
$10.19
EV/Gross Profit
25%
$13.32
P/E Ratio
25%
$17.61
EV/FCF
25%
$12.96
Suggested Share Price (rounded)
$13.50
Source: Student Estimates and Company Financials
Strong Margins Compared to Peers
Blount has been able to generate larger margins primarily due to its cost-savings
strategies and efficiency at integrating its acquisitions. The company has seen EBITDA
margins that are the highest in its peer group and a gross margin that is comparable to
the median level. Additionally, profit and free cash flow margins are slightly higher
than its peers. The company is expected to expand its margins even further through its
value chain management initiatives.
Mixed Growth Indicates Exposure
Although Blount has experienced year-over-year growth that outshines its peers, the
company has been at the bottom for revenue growth compounded over the last five
years. While some of this is due to discontinued operations, an adjusted figure still
portrays the same situation for the company. Still, we feel that growth going forward is
promising for Blount as its acquisitions have provided premium levels of growth for the
company.
Multiples Analysis Indicates Overvaluation
We chose four multiples to compare Blount to the peer group. We felt that a variety of
multiples would better capture an estimated value of the company as it gives us more
criteria with which to judge the company. Enterprise Value multiples indicate that the
company’s growth, cost management, and cash flow generation are priced high
compared to Blount’s peers, even though some factors such as margins are relatively
higher. Blount’s implied P/E ratio was estimated to be 23.6x and was the only multiple
that indicated an undervaluation. P/E ratios in the industry were relatively higher
compared to other industries. We feel that this may be due to the growth potential seen
through acquisition opportunities. Overall, multiples were more weighted towards
Blount being overvalued. Although the company has strong margins and high growth
prospects, pricing indicates that the company is overvalued which leads us to
recommend a HOLD based on a market analysis.
Figure 5: Sales/Margin Comparisons
Financial Analysis
$900
$800
$700
$600
$500
$643
$400
$300
$650
$566
$487
$487
$200
Earnings
Earnings for Blount from continuing operations have fell substantially due to
unfavorable trends in the market. Backlog has reduced since 2008 and this has caused
chainsaw chain and guide bar sales to decrease by about 15% between 2008 and 2009.
In addition to decreasing sale, margins have fallen by a sizable amount due to rising
input costs. Although the company places some effort into hedging rising costs, these
efforts have not been able to protect against the full impact of price increases. Most
apparent was the change in EBITDA which fell by 3.1% between 2008 and 2009.
$100
$100
$111
$84
2007
2008
2009
$0
EBITDA
$120
$125
LTM Pro Forma
(9/30/2010)
2010 Pro Forma
Adjusted
Total Sales
Source: Blount Company Presentation
Going forward sales are expected to increase significantly due to steady organic growth
matched with premium acquisition growth. All product lines will benefit from
acquisition based growth and this has been reflected by our short-term projected growth
rates. The company’s most recent acquisition, SpeeCo, contributed $13.8 million in
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February 2011
reveneues in the third quarter of 2010 (acquisition cost was $92 million). Other
products such as PowerSharp were planned to be launched in the fourth quarter. The
product had very good reviews at trade shows and is expected to boost 2011 revenues.
In the long-term acquisitions are expected to continue and the company should see
steady annual growth rates over 5% for the next ten years.
Cash Flow
The company’s statement of cash flows has been relatively stable over the last three
years despite unfavorable economic conditions. The access to financing (and
refinancing) has allowed the company to have a healthy amount of cash available to
them. Although the company has taken on additional debt, solvency ratios have for the
most part stayed level. In the future, the company plans to use cash from earnings to
pay down debt and change their capital structure.
Figure 6: Historic Backlog Levels
$120,000
Cash levels in the next few years will reduce due primarily to acquisitions. Historically,
the company has made acquisitions through cash along with debt financing. Since
acquisitions will be substantially larger between 2010 and 2014, the company will likely
use more of their cash reserves to fund these acquisitions.
$100,000
$80,000
$60,000
$40,000
$20,000
$0
2005
2006
2007
2008
2009
Source: Blount 10-K
Balance Sheet
Blount’s assets consist of large components of cash, receivables, inventory, PP&E, and
goodwill. Cash reserves have been relatively level over the last three years, but are
expected to reduce over the next four years due to acquisitions. However, thereafter
cash levels will increase as larger portions of earnings will stream into cash reserves. It
has not yet been stated whether or not Blount plans to pay dividends in the future.
Inventory levels fell in 2009 due to reduced backlog. Going forward, positive sales
forecasts will add raise the need to hold more inventory. Furthermore, overseas
operations in China have allowed Blount to gain a foothold in Asia which will require
the company to hold larger levels of inventory overseas.
PP&E as well as goodwill will rise in the future because of acquisitions. On average,
goodwill has accounted for about 40-50% of historic acquisitions. While these levels of
goodwill seem high, they seem normal for the industry as customer and supplier
relationships account for a large portion of firm value.
Payables and accrued expenses are expected to trend upward over time as the business
grows. Long term debt is expected to decrease by about half over the next four years
due to early repayment of Blount’s long-term debt. The company will likely maintain
debt levels of about 20-30% of sales. By maintaining these levels of debt, the company
will be able to continually finance acquisitions and have enough cash via revolving
credit lines to finance daily operations.
The company entered a large merger in August 1999 with Red Dog Acquisition, Corp.,
a subsidiary of Lehman Brothers Merchant Banking Partners. The merger resulted in a
restructuring of stock which resulted in a shareholder’s deficit on Blount’s books. Over
time, the company has recovered the book value of equity through continual positive net
income. Just this year, the company was able to report a positive value on its books for
shareholders’ equity.
Financial Ratios
Blount’s financial ratios indicate healthy margins, no insolvency concerns, and growing
EPS. Margins decreased in 2009 primarily because of higher costs and lower sales.
These margins are expected to be recovered within the next four years. Furthermore,
ROA is expected to make a quick recovery as net margin sees increases from 4.6% to an
estimated 6.4% between 2009 and 2010. One of the most stark changes about Blount
will be the decrease in debt levels going forward. Long-term debt is expected to be paid
down substantially which will result in lower debt ratio. Current ratio is expected to
decrease as larger portions of debt become current. However, after 2014, current ratio
should be around 2.0-2.5 as current portions of long-term debt will be much smaller. In
whole, the company should expect healthy increases in EPS growth over the next four
years and into the long-term.
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Global Investment Research Challenge
February 2011
2007A
2008A
2009A
2010E
2011E
2012E
2013E
2014E
14.5%
Profitability
EBITDA Margin
16.8%
14.0%
13.3%
10.3%
12.8%
14.0%
14.2%
Net Profit Margin
8.3%
6.5%
4.6%
6.4%
8.2%
8.5%
9.0%
9.3%
Return on Assets
10.4%
7.7%
4.8%
7.1%
9.5%
10.0%
10.7%
11.3%
Total Debt Ratio
1.1
1.1
1.0
0.9
0.9
0.8
0.7
0.6
Long Term Debt Ratio
0.7
0.6
0.6
0.6
0.5
0.4
0.3
0.2
Interest Coverage
2.4
3.2
2.3
3.6
5.0
6.0
7.0
9.7
Current Ratio
2.4
2.1
2.7
2.8
2.4
2.2
2.1
1.9
Acid Test Ratio
1.4
1.1
1.5
1.4
1.2
1.0
1.0
0.9
$0.89
$0.81
$0.48
$0.82
$1.21
$1.41
$1.64
$1.85
Solvency
Per Share Data
Total Earnings
Investment Risks
OPERATIONAL RISKS
Table 9: Blount Risk Summary
Investment Risks
Actions to Mitigate Risk
Dependence on customers Blount continually attracts new customers
and suppliers
and looks for new material suppliers
Inability to pass cost
increases to customers
Blount uses a combinations of hedging
techniques to limit their exposure
commodity price fluctuation
Necessity of skilled laborers
for operations
Blount recognizes the need to repeatedly
train employees, and does the most
possible to retain their skilled workers.
Blount's ability to payoff
interest obligations
The new debt restructuring and debt
covenants will allow Blount to pay off their
interest. Management has also guided
that any excess cash may be used to payoff
debt.
Low-cost manufacturers Blount has opened a manufacturing facility
decreasing revenue, gross
in China and is looking open another
profit, and cash flow
facility in Eastern Europe
Source: Blount 10-K
Dependency on Customers and Suppliers
Blount relies heavily on Husqvana AB and five other customers heavily for business. If
Blount’s relationships with any of these customers were to end there would be a
significant loss in sales.
The company also receives its raw materials from a limited number of suppliers. This
can cause problems in its operations in the areas of manufacturing delays, increase in
costs, reduction in product quality, and loss of sales in short term.
Inability to Pass Cost Increases to Consumers
Blount is vulnerable to the fluctuation of prices in the many materials it uses. Most
notably is the price volatility in cold rolled strip steel. Currently, the company uses
hedging techniques in as a means to keep costs constants. It refers to hedging as a small
band aid to a much larger problem. In the short run Blount is not able to pass on the
increase of costs to its consumer. They have found that in the past, passing through the
incremental costs has too much of an adverse effect to sales. Blount is also vulnerable
to any increases in energy costs, which will hurt their operating margins.
Necessity for Skilled Laborers
One of Blount’s strengths is its work force and the intellect and skill their employees
have. Blount’s ability to continually retain and train their employees is crucial to their
efficiency and the quality of their products. Any large amount of turnover will hurt the
company’s margins.
Competition Increase from Low-Cost Manufacturers
A major risk to revenue and profitability is new low-cost manufacturing entrants into
Blount’s operating markets. These new entrants would have an adverse effect on
revenue and decrease Blount’s margins. Another risk is if these new entrants gain the
technology and processes of manufacturing products similar to Blount’s. The
combination of these two risks could cause Blount to be forced out of certain markets
and limit revenue, operating income, and cash flow.
Foreign Sales and Operations
In 2009 over two thirds of sales were from foreign customers. This position increases
Blount’s exposure to foreign risk factors. These include unexpected changes in political
environment, operating legislation, and currency transactions. Since Blount also have
operations in foreign areas these risks are amplified.
CREDIT RISKS
Blount’s Ability to Payoff Interest Obligations
Even with Blount’s new debt restructuring, a significant portion of Blount’s cash flow
from operations is dedicated to their payment of interest expense. Therefore a decrease
in top line growth or inability to keep cost levels low could result in the company
defaulting on some of its debt. Blount’s financial structure is even more at risk during
times of economic uncertainty. Management stated that Blount would make necessary
modifications to their operations to meet debt obligations. Any missed payment of their
8
University of Oregon
Global Investment Research Challenge
February 2011
debt obligations could force Blount to pay back the rest of their debt at an accelerated
pace.
REGULATORY RISKS
New Legislation in Industry
Any change in regulatory law or environmental legislation on how Blount treats waste
from operations will adversely affect their bottom line. Currently the industry
regulation level is medium. Changes in regulations and health and safety law for
workers will also adversely Blount’s profit.
MARKET RISKS
Necessity of Downstream Demand
Downstream demand is necessary for Blount and any drops in these upstream industries
greatly affect top line growth for the company. The last two years Blount has been
greatly affected by the housing market crash. Other market factors that can affect
Blount are recessionary economic cycles, downturns in customer’s business cycles,
downturn in regional economies where business is located in, decline in securities to
fund the pension plan, and terrorist activities, war, and other armed conflicts involving
the US would adversely affect Blount.
WEATHER RISKS
Weather Fluctuations out of Blount’s Control
Volatility in weather has a direct effect on Blount’s sales. Consistent rain drives
demand down for lawn mower blades and other outdoor segment products. At the same
time, natural disaster usually stimulates demand for chain saws and concrete
cutters. Any severe fluctuations in weather patterns are out of Blount’s control.
9
University of Oregon
Global Investment Research Challenge
February 2011
Figure 1: Income Statement
in thousands
US Dollars
2007
Chainsaw Components
2008
2009
2010E
2011E
2012E
2013E
2014E
381,839
455,485
385,888
482,360
542,655
596,921
644,674
696,248
Outdoor Equipment
74,276
82,242
81,957
102,500
128,125
153,750
176,813
203,334
Other Products
59,420
59,308
34,581
38,060
41,866
46,053
50,658
54,710
515,535
597,035
502,426
622,920
712,646
796,723
872,145
954,293
Revenues
Cost of Goods Sold (Less D&A)
Gross Profit
SG&A Expenses
Non-Recurring Expenses
318,986
375,700
306,988
389,325
440,059
489,985
536,369
586,890
196,549
221,335
195,438
233,595
272,587
306,738
335,776
367,403
94,257
103,632
109,116
121,469
138,966
155,361
165,707
181,316
1,660
4,186
116,043
82,136
-
EBITDA
102,292
Depreciation & Amortization
EBIT
Interest Expense
Other Income (Expenses)
Pretax Income
112,126
-
133,621
-
151,377
-
170,068
186,087
21,592
28,563
25,943
21,802
26,724
31,869
34,886
38,172
87,480
56,193
90,323
106,897
119,508
135,182
147,915
33,066
27,094
24,707
24,917
21,379
19,918
19,187
15,269
539
3,202
447
(7,139)
-
-
-
48,173
63,588
31,933
10,714
Income Taxes
16,030
$
-
80,700
Discontinued Operations (net of tax)
Net Income
-
42,857
(244)
24,745
$
38,599
$
58,268
85,518
99,590
-
115,995
132,647
-
-
-
-
-
-
8,940
18,646
27,366
31,869
37,118
43,773
22,993
$
39,622
$
58,152
$
67,721
$
78,877
$
88,873
Source: Company Documents, Student Estimates
Figure 2: Balance Sheet
in thousands
US Dollars
2007
2008
2009
2010E
2011E
2012E
2013E
2014E
Cash
57,589
58,275
55,070
54,400
46,523
44,432
46,330
32,021
Accounts Receivable
67,818
75,555
74,475
93,438
108,679
121,500
133,002
145,530
Inventory
70,273
90,302
78,179
109,011
128,276
143,410
156,986
171,773
5,536
5,492
5,528
12,458
13,081
13,735
14,422
15,143
Other Current Assets
16,393
14,940
23,962
18,688
21,379
23,902
26,164
28,629
Total Current Assets
217,609
244,564
237,214
287,995
317,939
346,980
376,905
393,096
PP&E, net
89,729
119,749
114,470
113,454
121,293
129,857
139,451
148,517
Deferred Tax Assets
14,849
21,679
16,006
5,602
5,602
5,602
5,602
5,602
-
13,864
12,371
12,371
12,990
13,639
14,321
15,037
Deferred Tax Assets (Current)
Intangible Assets
Assets Held for Sale
Goodwill
Other Assets
Total Assets
Accounts Payable
Current Portion of LT Debt
Accrued Expenses
Deferred Income Taxes
Total Current Liabilities
Long Term Debt
Deferred Income Taxes
48,984
1,429
900
66,071
66,071
108,885
125,611
144,193
164,403
181,745
40,778
32,328
36,534
28,106
30,917
34,008
37,409
41,150
411,949
499,684
483,566
556,413
614,351
674,279
738,091
785,146
29,799
28,864
31,539
38,933
44,540
49,795
54,509
59,643
1,242
31,981
5,013
7,787
17,816
35,853
43,607
57,258
57,447
55,235
50,614
57,620
65,920
73,697
82,854
90,658
533
498
501
374
1,782
1,593
872
954
89,021
116,578
87,667
104,713
130,058
160,938
181,842
208,513
295,758
293,539
280,852
330,112
307,864
268,874
226,938
152,015
2,223
4,695
7,043
7,747
8,521
9,374
10,311
57,417
-
Employee Benefit Obligations
48,948
93,898
75,780
60,911
54,820
52,079
54,683
Other Liabilities
32,368
36,966
41,312
20,753
22,828
25,111
27,622
30,384
466,095
543,204
490,306
523,531
523,317
515,523
500,459
458,640
32,882
91,034
158,755
237,632
326,505
556,413
614,351
674,279
738,091
785,146
Total Liabilities
Total Shareholders' Equity (Deficit)
(54,146)
(43,520)
Total Liabilities and Shareholders' Deficit
411,949
499,684
(6,740)
483,566
Source: Company Documents, Student Estimates
10
University of Oregon
Global Investment Research Challenge
February 2011
Figure 3: Statement of Cash Flows
in thousands
US Dollars
Income from Continuing Operations
2007
2008
2009
2010E
2011E
2012E
2013E
2014E
32,143
38,843
22,993
39,622
58,152
67,721
78,877
88,873
Depreciation & Amortization
21,592
28,563
25,943
21,802
26,724
31,869
34,886
38,172
Deferred Income Taxes
11,059
3,166
2,145
-
-
-
-
-
2,431
2,151
3,325
3,658
3,658
3,658
3,658
3,658
(32,838)
(7,201)
2,321
(5,209)
(4,318)
454
Other Adjustments
Net Working Capital
Discontinued Operations
Cash Flow from Operating Activities
Sale of Assets
Purchase of PP&E
Acqusitions
Discontinued Operations
Cash Flow from Investing Activities
29,178
2,309
61,204
(14,924)
(11,207)
-
-
-
29,686
67,935
88,324
106,213
(14,376)
116,327
-
-
-
-
-
(26,058)
(17,293)
(21,802)
(24,943)
(25,894)
(30,525)
(33,400)
-
(64,399)
-
(90,854)
(35,632)
(39,836)
(43,607)
(38,172)
-
-
-
-
-
52,863
3,290
(20,598)
-
(18,517)
69,071
1,632
57,181
(35,395)
1,725
(87,100)
(14,003)
(112,656)
(60,575)
(65,730)
(74,132)
(71,572)
Borrowings on Revolving Credit, net
(27,000)
30,750
(27,350)
21,300
20,395
19,134
13,425
12,508
Repayment of Debt Principal, net
(26,875)
(2,230)
(12,305)
65,000
(35,632)
(43,820)
(43,607)
(71,572)
Other Financing Adjustments
Cash Flow from Financing Activities
Foreign Exchange Effects
Net Change in Cash
Cash at Beginning of Year
Cash at Filing Date
(376)
1,069
(5,609)
(54,251)
29,589
(45,264)
2,163
29,953
(3,007)
(1,119)
686
(3,205)
(4,000)
82,300
(670)
(15,237)
(24,686)
(30,182)
-
-
-
(7,877)
(2,091)
1,898
(59,064)
(14,309)
27,636
57,589
58,275
55,070
54,400
46,523
44,432
46,330
57,589
58,275
55,070
54,400
46,523
44,432
46,330
32,021
Source: Company Documents, Student Estimates
11
University of Oregon
Global Investment Research Challenge
February 2011
Figure 4: Statement of Discounted Cash Flows (Projected 2010-2020)
in thousands
($ in thousands, except per share data)
Total Company Revenue
% Y/Y Growth
Cost of Revenue
% Revenue
Gross Profit
Gross Margin
SG&A
% Revenue
Non-Recurring Losses (Gains)
% Revenue
Plant Closure and Severance Costs
% Revenue
EBIT
% Revenue
Other (Expense) Income, net
% Revenue
Interest Expense
% Revenue
Pre-tax Income
% Revenue
Gain (Loss) on Discontinued Operations
Less Taxes (Benefit)
Tax Rate
Net Income
Net Margin
Add Back Depreciation and Ammortization
% Revenue
Add Back Interest Expense*(1-Tax Rate)
% Revenue
Operating Cash Flow
% Revenue
Current Assets
% Revenue
Current Liabilities
% Revenue
Net Working Capital
% Revenue
Change in Net Working Capital
Capital Expenditures
% Revenue
Acquisitions
% Revenue
Unlevered Free Cash Flow
Discounted Unlevered Free Cash Flows
2007
$
$
515,535
$
340,578
66.1%
174,957
33.9%
94,257
18.3%
0.0%
0.00%
80,700
15.7%
539
0.1%
33,066
6.4%
48,173
9.3%
10,714
16,030
33.3%
42,857
$
8.3%
21,592
4.2%
22,055
4.3%
86,504
16.8%
217,609
42.2%
89,021
17.3%
128,588
24.9%
18,517
3.6%
0.0%
67,987
2008
2009
597,035
$
15.8%
404,263
67.7%
192,772
32.3%
103,632
17.4%
1,660
0.3%
0.00%
87,480
14.7%
3,202
0.5%
27,094
4.5%
63,588
10.7%
(244)
24,745
38.9%
38,599
$
6.5%
28,563
4.8%
16,554
2.8%
83,716
14.0%
244,564
41.0%
116,578
19.5%
127,986
21.4%
(602)
26,058
4.4%
64,399
10.8%
(6,139)
502,426
$
-15.8%
332,931
66.3%
169,495
33.7%
109,116
21.7%
4,186
0.8%
0.00%
56,193
11.2%
447
0.1%
24,707
4.9%
31,933
6.4%
8,940
28.0%
22,993
$
4.6%
25,943
5.2%
17,789
3.5%
66,725
13.3%
237,214
47.2%
87,667
17.4%
149,547
29.8%
21,561
17,293
3.4%
0.0%
27,871
2010 Q123A
440,498
2010 Q4E
$
289,900
65.8%
150,598
34.2%
86,560
19.7%
0.0%
0.00%
64,038
14.5%
(7,139)
-1.6%
20,647
4.7%
36,252
8.2%
7,207
19.9%
29,045
$
6.6%
15,692
3.6%
16,542
3.8%
61,279
13.9%
308,875
112,332
196,543
14,017
3.2%
90,854
20.6%
(43,592)
$
182,422
2010E
$
121,227
66.0%
61,195
33.5%
34,909
19.1%
0.0%
0.00%
26,285
14.4%
0.0%
4,270
2.3%
22,016
12.1%
11,439
52.0%
10,577
$
5.8%
6,110
3.3%
2,051
1.1%
18,739
10.3%
287,995
104,713
183,282
(13,261)
7,785
4.3%
0.0%
24,214
23,956
2011E
622,920
$
24.0%
411,127
66.0%
211,793
34.0%
121,469
19.5%
0.0%
0.00%
90,323
14.5%
(7,139)
0.0%
24,917
4.0%
58,268
9.4%
18,646
32.0%
39,622
$
6.4%
21,802
3.5%
18,594
3.0%
80,018
12.8%
287,995
46.2%
104,713
16.8%
183,282
29.4%
33,735
21,802
3.5%
90,854
14.6%
(66,374)
$
712,646
$
14.4%
466,783
65.5%
245,863
34.5%
138,966
19.5%
0.0%
0.00%
106,897
15.0%
0.0%
21,379
3.0%
85,518
12.0%
27,366
32.0%
58,152
$
8.2%
26,724
3.8%
14,538
2.0%
99,414
14.0%
315,547
44.3%
130,058
18.3%
185,489
26.0%
2,207
24,943
3.5%
35,632
5.0%
36,632
34,723
$
2012 E
796,723
$
11.8%
521,854
65.5%
274,869
34.5%
155,361
19.5%
0.0%
0.00%
119,508
15.0%
0.0%
19,918
2.5%
99,590
12.5%
31,869
32.0%
67,721
$
8.5%
31,869
4.0%
13,544
1.7%
113,135
14.2%
345,195
43.3%
160,938
20.2%
184,257
23.1%
(1,232)
25,894
3.3%
39,836
5.0%
48,637
42,319
$
2013 E
2014 E
872,145
$
9.5%
571,255
65.5%
300,890
34.5%
165,707
19.0%
0.0%
0.00%
135,182
15.5%
0.0%
19,187
2.2%
115,995
13.3%
37,118
32.0%
78,877
$
9.0%
34,886
4.0%
13,047
1.5%
126,810
14.5%
375,565
43.1%
181,842
20.9%
193,723
22.2%
9,466
30,525
3.5%
43,607
5.0%
43,212
34,512
$
2015 E
2016 E
2017 E
2018 E
2019 E
2020 E
954,293
$ 1,027,741
$ 1,106,392
$ 1,183,250
$ 1,263,040
$ 1,336,490
$ 1,414,421
9.4%
7.7%
7.7%
6.9%
6.7%
5.8%
5.8%
625,062
668,031
719,155
763,196
814,661
855,353
905,230
65.5%
65.0%
65.0%
64.5%
64.5%
64.0%
64.0%
329,231
359,709
387,237
420,054
448,379
481,136
509,192
34.5%
35.0%
35.0%
35.5%
35.5%
36.0%
36.0%
181,316
192,701
207,449
221,859
233,662
247,251
261,668
19.0%
18.8%
18.8%
18.8%
18.5%
18.5%
18.5%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
147,915
167,008
179,789
198,194
214,717
233,886
247,524
15.5%
16.3%
16.3%
16.8%
17.0%
17.5%
17.5%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
15,269
11,305
11,064
11,832
12,630
13,365
14,144
1.6%
1.1%
1.0%
1.0%
1.0%
1.0%
1.0%
132,647
155,703
168,725
186,362
202,086
220,521
233,379
13.9%
15.2%
15.3%
15.8%
16.0%
16.5%
16.5%
43,773
51,382
55,679
63,363
68,709
74,977
79,349
33.0%
33.0%
33.0%
34.0%
34.0%
34.0%
34.0%
88,873
$
104,321
$
113,046
$
122,999
$
133,377
$
145,544
$
154,030
9.3%
10.2%
10.2%
10.4%
10.6%
10.9%
10.9%
38,172
38,540
38,724
38,456
41,049
43,436
45,969
4.0%
3.8%
3.5%
3.3%
3.3%
3.3%
3.3%
10,230
7,574
7,413
7,809
8,336
8,821
9,335
1.1%
0.7%
0.7%
0.7%
0.7%
0.7%
0.7%
137,275
150,436
159,182
169,264
182,762
197,800
209,334
14.4%
14.6%
14.4%
14.3%
14.5%
14.8%
14.8%
392,267
416,235
467,451
508,797
543,107
574,691
608,201
41.1%
40.5%
42.3%
43.0%
43.0%
43.0%
43.0%
208,513
220,964
243,406
224,817
233,662
240,568
254,596
21.9%
21.5%
22.0%
19.0%
18.5%
18.0%
18.0%
183,754
195,271
224,044
283,980
309,445
334,122
353,605
19.3%
19.0%
20.3%
24.0%
24.5%
25.0%
25.0%
(9,969)
11,517
28,774
59,935
25,465
24,678
19,483
33,400
35,971
38,724
41,414
44,206
46,777
49,505
3.5%
3.5%
3.5%
3.5%
3.5%
3.5%
3.5%
38,172
41,110
38,724
41,414
37,891
40,095
42,433
4.0%
4.0%
3.5%
3.5%
3.0%
3.0%
3.0%
75,672
61,838
52,961
26,501
75,199
86,251
97,914
55,477
$
41,614
$
32,715
$
15,026
$
39,139
$
41,207
$
42,940
Source: Company Documents, Student Estimates
Figure 5: Revenue Projections
in thousands
(in thousands)
Chainsaw Components and Accessories
% Growth
Outdoor Equipment and Accessories
% Growth
Other Products
% Growth
Total
% Growth
2005
357,300
(in thousands)
Chainsaw Components and Accessories
% Growth
Outdoor Equipment and Accessories
% Growth
Other Products
% Growth
Total
% Growth
2013E
644,674
8.0%
176,813
15.0%
50,658
10.0%
872,145
9.5%
68,000
53,500
478,800
2006
360,300
0.8%
64,900
-4.6%
62,300
16.4%
487,500
1.8%
2007
381,800
6.0%
74,300
14.5%
59,400
-4.7%
515,500
5.7%
2008
455,500
19.3%
82,200
10.6%
59,300
-0.2%
597,000
15.8%
2009
385,888
-15.3%
82,000
-0.2%
34,600
-41.7%
502,488
-15.8%
2010E
482,360
25.0%
102,500
25.0%
38,060
10.0%
622,920
24.0%
2011E
542,655
12.5%
128,125
25.0%
41,866
10.0%
712,646
14.4%
2012E
596,921
10.0%
153,750
20.0%
46,053
10.0%
796,723
11.8%
2014E
696,248
8.0%
203,334
15.0%
54,710
8.0%
954,293
9.4%
2015E
744,985
7.0%
223,668
10.0%
59,087
8.0%
1,027,741
7.7%
2016E
797,134
7.0%
246,035
10.0%
63,223
7.0%
1,106,392
7.7%
2017E
844,962
6.0%
270,638
10.0%
67,649
7.0%
1,183,250
6.9%
2018E
895,660
6.0%
294,995
9.0%
72,385
7.0%
1,263,040
6.7%
2019E
940,443
5.0%
318,595
8.0%
77,451
7.0%
1,336,490
5.8%
2020E
987,465
5.0%
344,083
8.0%
82,873
7.0%
1,414,421
5.8%
Source: Company Documents, Student Estimates
12
University of Oregon
Global Investment Research Challenge
February 2011
Figure 6: Working Capital Model
in thousands
($ in thousands)
2007
515,500
$
2011 E
712,646
$
2012 E
796,723
$
2013 E
872,145
$
2014 E
954,293
57,589
58,275
55,070
54,400
46,523
44,432
46,330
32,021
11.2%
9.8%
11.0%
8.7%
6.5%
5.6%
5.3%
3.4%
67,818
75,555
74,475
93,438
108,679
121,500
133,002
145,530
13.2%
12.7%
14.8%
15.0%
15.3%
15.3%
15.3%
15.3%
70,273
90,302
78,179
109,011
128,276
143,410
156,986
171,773
13.6%
15.1%
15.6%
17.5%
18.0%
18.0%
18.0%
18.0%
5,536
5,492
5,528
12,458
10,690
11,951
13,082
14,314
1.1%
0.9%
1.1%
2.0%
1.5%
1.5%
1.5%
1.5%
16,393
14,940
23,962
18,688
21,379
23,902
26,164
28,629
3.2%
2.5%
4.8%
3.0%
3.0%
3.0%
3.0%
3.0%
$ 217,609
$ 244,564
$ 237,214
$ 287,995
$ 315,547
$ 345,195
$ 375,565
$ 392,267
$
42.2%
41.0%
47.2%
46.2%
44.3%
43.3%
43.1%
41.1%
29,799
28,864
5.8%
4.8%
1,242
31,981
0.2%
5.4%
57,447
55,235
11.1%
9.3%
533
498
0.1%
0.1%
89,021
$ 116,578
$
17.3%
19.5%
$
2010E
622,920
Current Assets
Cash and Cash Equivalents
% of Revenues
Accounts receivable
% of Revenues
Inventories
% of Revenues
Deferred Tax Assets
% of Revenues
Other Current Assets
% of Revenues
Total Current Assets
% of Revenues
$
$
2009
502,488
$
Current Liabilities
Accounts Payable
% of Revenues
Current Portion of Long-term Debt
% of Revenues
Accrued Expenses
% of Revenues
Deferred Income Taxes
% of Revenues
Total Current Liabilities
% of Revenues
$
2008
597,000
Net Revenues
$
31,539
38,933
44,540
49,795
54,509
59,643
6.3%
6.3%
6.3%
6.3%
6.3%
6.3%
5,013
7,787
17,816
35,853
43,607
57,258
1.0%
1.3%
2.5%
4.5%
5.0%
6.0%
50,614
57,620
65,920
73,697
82,854
90,658
10.1%
9.3%
9.3%
9.3%
9.5%
9.5%
501
374
1,782
1,593
872
954
0.1%
0.1%
0.3%
0.2%
0.1%
0.1%
87,667
$ 104,713
$ 130,058
$ 160,938
$ 181,842
$ 208,513
$
17.4%
16.8%
18.3%
20.2%
20.9%
21.9%
Source: Company Documents, Student Estimates
13
2015 E
1,027,741
$
2016 E
1,106,392
$
2017 E
1,183,250
$
2018 E
1,263,040
$
2019E
1,336,490
$
2020E
1,414,421
25,694
2.5%
159,300
15.5%
184,993
18.0%
15,416
1.5%
30,832
3.0%
416,235
$
40.5%
44,256
4.0%
171,491
15.5%
201,917
18.3%
16,596
1.5%
33,192
3.0%
467,451
$
42.3%
53,246
4.5%
186,362
15.8%
215,943
18.3%
17,749
1.5%
35,497
3.0%
508,797
$
43.0%
56,837
4.5%
198,929
15.8%
230,505
18.3%
18,946
1.5%
37,891
3.0%
543,107
$
43.0%
60,142
4.5%
210,497
15.8%
243,909
18.3%
20,047
1.5%
40,095
3.0%
574,691
$
43.0%
63,649
4.5%
222,771
15.8%
258,132
18.3%
21,216
1.5%
42,433
3.0%
608,201
43.0%
61,664
6.0%
61,664
6.0%
97,635
9.5%
0.0%
220,964
$
21.5%
66,384
6.0%
66,384
6.0%
110,639
10.0%
0.0%
243,406
$
22.0%
70,995
6.0%
35,497
3.0%
118,325
10.0%
0.0%
224,817
$
19.0%
75,782
6.0%
31,576
2.5%
126,304
10.0%
0.0%
233,662
$
18.5%
80,189
6.0%
26,730
2.0%
133,649
10.0%
0.0%
240,568
$
18.0%
84,865
6.0%
28,288
2.0%
141,442
10.0%
0.0%
254,596
18.0%
University of Oregon
Global Investment Research Challenge
February 2011
Figure 7: Market Analysis
in millions
Dollars in Millions
Total Assets (MRQ)
Cash as % of Total Assets (MRQ)
LT Debt to Total Assets (MRQ)
Revenue (TTM)
YOY Revenue Growth
5 Year CAGR Revenues
5 Year CAGR Earnings
P/E Ratio (TTM)
Gross Profit Margin (TTM)
EBITDA Margin (TTM)
EBIT Margin (TTM)
Net Income Margin (TTM)
Free Cash Flow Margin (TTM)
Deere &
Company
Metso Co.
$40,790
9.9%
41.2%
$25,366
9.8%
3.0%
5.2%
20.9 x
35.1%
13.9%
10.3%
7.4%
1.9%
$8,083
10.5%
20.9%
$6,743
-14.3%
6.4%
3.0%
21.4 x
25.6%
9.8%
6.5%
3.9%
8.0%
Stanley
Black &
Decker
$15,041
11.6%
20.1%
$6,966
Outlier
16.3%
-16.0%
29.5 x
35.5%
13.4%
9.2%
1.7%
6.9%
Snap-on
Toro Co.
Husqvarna
Min
1st Quartile
Mean
Median
3rd Quartile
Max
$3,366
10.7%
21.2%
$2,557
4.8%
1.3%
13.0%
Outlier
46.2%
14.8%
11.9%
6.5%
2.5%
$885
20.0%
25.3%
$1,691
10.4%
-1.0%
-4.0%
20.4 x
34.1%
11.6%
9.0%
5.5%
7.2%
$4,239
9.8%
24.3%
$4,432
-6.3%
4.4%
-9.8%
21.9 x
28.3%
12.3%
8.5%
4.4%
7.4%
$885
9.8%
20.1%
$1,691
-14.3%
-1.0%
-16.0%
20.4 x
25.6%
9.8%
6.5%
1.7%
1.9%
$2,746
9.9%
20.7%
$2,341
-10.3%
0.7%
-11.4%
20.6 x
27.6%
11.2%
8.0%
3.4%
2.4%
$12,067
12.1%
25.5%
$7,959
0.9%
5.1%
-1.4%
22.8 x
34.1%
12.6%
9.2%
4.9%
5.6%
$6,161
10.6%
22.7%
$5,588
4.8%
3.7%
-0.5%
21.4 x
34.6%
12.8%
9.1%
4.9%
7.0%
$21,478
13.7%
29.3%
$11,566
10.1%
8.9%
7.2%
25.7 x
38.2%
14.1%
10.7%
6.7%
7.6%
$40,790
20.0%
41.2%
$25,366
10.4%
16.3%
13.0%
29.5 x
46.2%
14.8%
11.9%
7.4%
8.0%
Dollars in Millions
Balance Sheet Comparison
Total Assets (MRQ)
Cash as % of Total Assets (MRQ)
LT Debt to Total Assets (MRQ)
Income Statement Comparison
Revenue (TTM)
YOY Revenue Growth
5 Year CAGR Revenues
5 Year CAGR Earnings
P/E Ratio (TTM)
Gross Profit Margin (TTM)
EBITDA Margin (TTM)
EBIT Margin (TTM)
Net Income Margin (TTM)
Free Cash Flow Margin (TTM)
Selected Multiples Suggested
EV/Revenue
EV/Gross Profit
P/E Ratio
EV/FCF
Blount
Indicated Multiple
$608
15.0%
60.3%
Minimum
Third Quartile
Maximum
$590
19.2%
-4.4%
-13.0%
20.9 x
33.3%
18.5%
14.0%
6.1%
7.3%
Minimum
Maximum
Minimum
Minimum/1Q
First Quartile
Median
Maximum
Third Quartile
Median/3Q
Median/3Q
1Q/Median
Median
Median/3Q
Median/3Q
Source: Company Documents, Student Estimates
Disclosures:
Ownership and material conflicts of interest:
The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company.
The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might bias the content or publication of
this report.
Receipt of compensation:
Compensation of the author(s) of this report is not based on investment banking revenue.
Position as a officer or director:
The author(s), or a member of their household, does not serves as an officer, director or advisory board member of the subject company.
Market making:
The author(s) does not act as a market maker in the subject company’s securities.
Ratings guide:
Banks rate companies as either a BUY, HOLD or SELL. A BUY rating is given when the security is expected to deliver absolute returns of 15% or greater over the
next twelve month period, and recommends that investors take a position above the security’s weight in the S&P 500, or any other relevant index. A SELL rating is
given when the security is expected to deliver negative returns over the next twelve months, while a HOLD rating implies flat returns over the next twelve months.
Investment Research Challenge and Global Investment Research Challenge Acknowledgement:
Investment Research Challenge as part of the CFA Institute Global Investment Research Challenge is based on the Investment Research Challenge originally
developed by the New York Society of Security Analysts.
Disclaimer:
The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be reliable, but the
author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information is not intended to be used as the basis
of any investment decisions by any person or entity. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell
any security. This report should not be considered to be a recommendation by any individual affiliated with [Society Name], CFA Institute or the Global Investment
Research Challenge with regard to this company’s stock.
14