Milacron Holding’s Board of Directors announced on Nov. 15 that it authorized a program to repurchase up to $125 million of its outstanding common stock over a two-year period. “With restructuring coming to a close and our accelerated debt repayment program nearing its target, we will have additional cash flow and financial flexibility in 2019 and beyond,” said Bruce Chalmers, Milacron’s Chief Financial Officer. “Having the ability to buy back shares gives us an additional way to create shareholder value. Our balanced approach to capital allocation includes organic and strategic growth opportunities, debt pay down and share buybacks.”
According to independent financial analyst Edward Ambrose for Seeking Alpha, a stock market insights and financial analysis firm, stock in the Cincinnati-based company fell during September and October on “trade fears and expectations of lower third-quarter earnings.” Buy orders were down, and the outlook for the year was cut slightly, keeping the stock near its low for the year. However, Ambrose noted that the market is not focusing on the impact of the restructuring, which will double profits, and Milacron is rated a “strong buy.”
Ambrose’s report noted that half of Milacron’s business is in North America, with 20% in Europe, 18% in China and 10% in India. The consumables, which are fluids, services, parts and molds, is 65% of sales. Equipment makes up the other 35%. The advantage of consumables is that it is more stable than new machines and is more profitable. Consumables represent 80% of the profit.
Milacron is closing its European plants in Belgium, Italy and Germany. Operations will be consolidated in a new plant in the Czech Republic, which is scheduled for completion in the fourth quarter. Ambrose said Milacron will spend $55 million on restructuring this year, with only minor expenses next year and an improvement in margins of $35 million in 2019.
Ambrose noted, however, that startup of the new plant in the Czech Republic “may not be as smooth as Milacron expects, reducing short-term cost savings and running up more consulting costs.”
Sales in 2018 were projected to rise by 2 to 4%, but that was cut in third-quarter guidance to 2%. Third-quarter orders were down 16.4%. Milacron eliminated an “unprofitable large machine line, which it is replacing with the Cincinnati, a smaller but more efficient product,” said the report. The company expects the new line will recover the lost sales in mid-2019.
Milacron also lost sales in China on tariff fears; for this reason, Ambrose said he kept 2019 sales flat on the expectation that “sales in China may not recover soon.” Operating income was up 11.4%, and cash flow nearly tripled to $33 million in the quarter.
Ambrose concluded his financial report by noting that Milacron is a “small company by public standards at $1.2 billion in sales, but it is not tiny. It is large by the standards of its industry,” he wrote, adding that Milacron’s management is “willing to sacrifice the short term—as it did in 2017 when profit dropped 96%. Their objective is improved long-term value.
“Milacron is an excellent example of an off-the-beaten-path investment,” said Ambrose, who acknowledges he has no positions in any stocks mentioned and that the report represents his own opinions.