CLARCOR (CLC)

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Clarcor (NYSE:CLC) is a Tennessee based manufacturer, marketer and servicer of filtration products & systems and containers. Though traditionally a producer of plastic and metal containers (currently part of packaging division John Lewis Clark named after the founder of Clarcor) the company entered the filtration market in 1981 after acquiring J.A. Baldwin Manufacturing Company followed by Dahl Manufacturing and Michigan Spring Company in 1986. In 1987 it renamed itself Clarcor from Clark. Between two filtration business segments; Industrial-Environmental and Engine-Mobile (trains, busses, trucks, cars, as well as commercial equipment) the products it makes filter sewage, gas, oil, microbials and other pollutants out of water (in lakes and engines) and air. Since 1991 it has had operations abroad (beginning with Australia where it purchased 1/5th of the largest filtration company there GUD Holdings Ltd. in 1991). Since 1993 it has been involved in the manufacturing of environmental control systems (Airguard Industries, Inc.).

2009 and 2006 revenue was nearly identical although that was mostly the result of negative growth (decreases of 14.3% in sales and 30% in operating profit) between 2008 and 2009.^[1][2]

The company has a diverse client base which ranges from commercial (factories, oil and gas drillers, agricultural equipment providers, food and beverage processors) to public institutions (hospitals, residences). In 2009 it became even more vertically integrated when it purchased a manufacturer or metal mesh filters for plastic resins and fibers (sales to the resins market were the biggest disappointment that year before the acquisition).^[3]

Clarcor also has a research laboratory, Filtration Research Center in Forrest, Ohio where it tests the designs of filters and packages.

Company Overview

Although the market it serves may appear small it isn't as it plays a key role in an industry sector (that hasn't had much competition for much of its history) that is becoming increasingly tied to other sectors. The use of and importance of high quality filters is gradually rising as energy reduction policies and efficiency standards demand new anti pollution technology many of which rely on products that utilize filtration systems. In Europe a lot of its business comes from the aviation and wastewater markets (global demand of those types of products fell 15% over the year leading up to the end of the first half of 2010.

3 core business segments

• Engine/Mobile (1hfy10 44.37% of CLARCOR's revenue, 70.2% of ebitda, had the highest operating margin among the 3 core segments (19.8% up from 17.9% & 3 times higher than the other 2 divisions in 1hfy09)) - serves parts wholesalers, aftermarkets businesses, engine manufacturers and service centers in the business of construction, agricultural and mining equipment as well as commercial and private buses, trains, cars, airplanes. In engines it separates water and fuels. There are also coolant and transmission filters and filter bags. Subsidiaries include Baldwin Filters Hastings Premium Filters Clark Filter Clarcor UK

• Industrial/Environmental (1hfy10 the division represented 46.4% of CLARCOR's revenue down from 52.7% in 1hfy09, 24.8% of ebitda up from 16.8% yoy; 1hfy09 sales and oper profit fell yoy 14%, 49% resp driven down by sales to offshore oil drilling (nat gas market down 5%) and automobile manufacturers, CLC air operation softened the impact) - products are used mostly with the aim of cleaning natural resources like water and air. Sytems are used in dust, microbes, oil and natural gas collection in addition to general air pollution, micro and ultra filtration, aviation fuel collectors, food and beverage processing and microbial contaminants. It also specializes in High Efficiency Particulate Air filters.

Subsidiaries which are numerous make up 2 major product lines Air Filtration and Air and Liquid Process Filtration and include AirGuard, United Air Specialists, Keddeg, MKI, Purolator Advanced Filtration, Purolator Lilquid Proccess, Total Filtration Services, Facet International, Peco Facet, TPS. Has regional divisions in China and the UK (Clarcor UK),

Consumer Packaging J.L. Clark (1hfy10 responsible for 9.2% of all CLARCOR's revenue, 5% of ebitda up from 1.6% yoy, operating margin more than three times higher than in 2009 (6.8%); 1hfy09 sales fell 10%, operating profit fell 42%) - Products depend on FDA approval.

• Products protect and store food and non food items. Containers are of high quality and many also have aesthetic value. Materials used are metals and plastics. Examples of products used are batteries.

Business & Financials

• Half year data is up to May 29-30, Fiscal Year data goes up to Nov 30.

1hfy09 sales of filter systems needing periodic replacements or aftermarket parts (maintenance) were a lot better than ones that didn't (80% of sales were to the replacement market). Operating margins rose to 11 % in the second quarter from 6.4% in the first quarter. The company purchased the remaining 20% interest in Baldwin-Weifang engine filter company (China) it didn't own, enlarging its heavy filter business in Asia. Currency exchange rates had a negative affect (lost $12 million)

1hfy10 as compared to 1hfy09 was markedly higher with increases across all key metrics 7% for net sales but operating income and diluted earnings were up sharply 52% for ebitda and diluted earnings per share which was up to 0.76 from 0.50. A lot of that growth was from the 2nd quarter which changed 12% yoy. The largest aggregate growth came from engine mobile filtration which was 23%/$21.1 million higher yoy but the largest percentage growth came from the packaging division 56%/$9.7 million yoy (driven by higher sales of smokeless tobacco packaging).^[10][11] Oil drilling filter sales increased.

Competition

Main direct compeititor is Donaldson Company Inc a 1918 established filtration company that dominated the filter market up to the late 1980's (at one point had close to a 90% market share). It has a diverse clientele ranging from food processors to automobile engine, vents manufacturers to production plant and pharmaceutical businesses (air quality). Because it has such a long history it has many key patents. In 2009 revenue was about twice that of CLARCOR ($1.869 billion compared to $907.75 million but CLARCOR's net income and total assets are about 70% as large).

The biggest company in the filtration industry is Cummins which specialzes in heavy duty filters however the filtration business is small relative to the engine segment. Cummins was affected by the recession more than Clarcor, its net revenue dropped 25%.

References

1. ↑ google finance income statement CLARCOR
2. ↑ ^{2.0 2.1 2.2} Clarcor 2009 Fiscal Year Report
3. ↑ CLARCOR complete financial report Jan 2010 includes information from 2007, 2008, 2009
4. ↑ 2007 Annual Report Clarcor
5. ↑ Clarkor 10 k fiscal year ended December 1, 2007
6. ↑ Clarcor Third Quarter 2009 Results (2009-09-16).
7. ↑ ^{7.0 7.1} Clarcor Third Quarter 2010 Results (2010-09-15).
8. ↑ [1]
9. ↑ Clarcor Files Lawsuit Against EDS July 5, 2006
10. ↑ Clarcor June 16, 2010 Interim Report
11. ↑ Clarcor Reports Second Quarter 2009 Results