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WIKI ANALYSIS
U.S. consumer products manufacturer Jarden Corporation owns brands in more than twenty niche markets. The conglomerate makes everything from Mr. Coffee kitchen appliances to Coleman camping products and Bicycle and Bee playing cards. Because Jarden's brands are concentrated in mature, slow-growth markets, [1] the company has seen little organic growth in recent years and has used acquisitions to grow revenue. Between 2002 and 2007, the company made ten significant acquisitions, most of them already sizeable conglomerates,[2] resulting in an increase in revenue of nearly 500% over the same period. Its net income, however, has grown much more slowly, falling from 10% of revenue to 3% from 2002 through 2007. With approximately $2B in debt, the company is highly leveraged and will find further acquisitions more difficult in the face of tightening credit conditions in 2008[3].
Jarden also faces growing competition from its own customers' private label brands. Mass retailers like Wal-Mart are offering fewer third party products as they try to bolster slowing profits with extra revenue from their own lines of generic consumer goods.
Business Financials
As a consumer goods conglomerate, Jarden covers a wide spread of markets. But despite aggressive revenue growth (total sales revenue increased tenfold from 2002-2006, and due to the acquisition of American Household and The Holmes Group, revenue increased 280% in 2004-5 alone[4]), net income has grown far more slowly. To improve its results, the company's management plans to take fuller advantage of potential economies of scale in its manufacturing processes.
Jarden's business is divided into four main segments:
- Branded Consumables: including high-profile branded consumer goods including Bicycle, Bee, and other playing cards, plasticware, fire logs, arts and crafts supply brands.
- Consumer Solutions: consumer home/kitchen appliances including Bionaire, Mr. Coffee, FoodSaver, Sunbeam, and Rival brands.
- Outdoor Solutions: sports and outdoor recreation clothing and equipment including Coleman, K2, and Marmot brands.
- Process Solutions: zinc and plastic manufactures including packaging, closures, unbranded plastic cutlery, medical disposables, and zinc blanks for the US and Canadian Mints.
Key Trends and Forces
- Private Label pressures from major customers The mass retailers and department stores that Jarden sales its products to are increasingly moving toward private label brands. These brands are typically marketed under the retailer's brand name and come with higher margins than traditional branded products.
- Dependency on mass retailers: Jarden's dependency on mass retailers (Wal-Mart Stores (WMT) alone accounted for 1/4 of Jarden's total 2006 sales[7]) exacerbates the threat from generic or private-label competition. When Wal-Mart and fellow big-box retailers push their own private-label alternatives to compensate for lower overall retail revenue, Jarden feels the squeeze: In 2Q 2007, Jarden's Branded Consumables segment saw a 6% net loss "primarily due to the loss of sales of a product line to a significant customer," a retailer which decided to scale back branded offerings in an area previously dominated by Jarden. [8]. The effects of private-label competition are most pronounced in the Branded Consumables segment and in the camping-oriented Coleman product lines.
- High commodity costs hurt already declining margins: Low commodity prices are vital to a company like Jarden, since its successful integration of mature low-margin businesses depends on the creation of cost-reducing production and distribution synergies for growth. Thus, rising oil prices put Jarden's cost structure under pressure, especially since its manufacturing business requires vast quantities of energy-derivative materials like resin (see Plastics Prices) and fuel.
- Outdoor Solutions sensitive to weather: Jarden's Outdoor Solutions segment is highly responsive to variations in weather patterns. For instance, seasons of heavy snow increase demand for Jarden's various winter sports brands, as in Q1 2008, and thus raises sales for the affected quarters. [9] Similarly, a warm, dry autumn could increase demand for Jarden's Coleman line of camping products (currently one of its weaker offerings).
- Darden is reliant on acquisitions for growth: Jarden's growth comes primarily from acquisitions-based market share increase and expansion across businesses, a roll-up growth strategy that threatens the company's profitability with the strain of high purchase prices as well as integration costs. Despite high growth rates from 2002 to 2006 (net sales have increased by a factor of ten, while net income has nearly tripled), income as a percentage of total sales has decreased from 9.9% in 2002 to 2.76% in 2006. If weak credit conditions cause Jarden's acquisitions to slow or stop, the company will be left with limited growth prospects [10].
- Debt management: As of mid-2007, Jarden found itself with 2 billion in long-term debt (including debt from recent acquisition K2).[11] Of this debt, about half is "floating" debt subject to fluctuations in interest rates. Any increase in interest rates will have a significant impact on the company’s net income.
Competitors
Jarden's spread-out nature makes it impossible to pinpoint a single main competitor. Apart from a few relatively similar consumer goods/appliances conglomerates like Newell Rubbermaid (NWL), which has numbers roughly parallel to Jarden's for earnings and revenue in both business segments, Jarden's primary competitors are conglomerates whose holdings overlap with Jarden's in only a handful of niche markets, small companies entirely invested in niche markets (like Lifetime Brands (LCUT)), and private label competitors, some backed by hefty retailers like Wal-Mart Stores (WMT).
| Company | Branded Consumables: Net sales/net earnings | Consumer Solutions: Net sales/net earnings |
|---|---|---|
| Clorox | 4,644M; 653M[12] | N/A |
| Whirlpool (WHR) | N/A | 2,909M; N/A[13] |
| Newell Rubbermaid | 912M; 118M[14] | 1,996M; 209M[15] |
| Church & Dwight Company (CHD) | 1,946M; 140M[16] | N/A |
| Jarden | 812M; 118M[17] | 1,900M; 250M[18] |
| NACCO Industries (NC) | N/A | 72.4M; 4.6M[19] |
| National Presto Industries (NPK) | 53M; -5M[20] | 124M; 33M[21] |
| Lifetime Brands (LCUT) | N/A | 239M; N/A[22] |
Notes
- ↑ Seeking Alpha, "Are Jarden's Earnings Set to Implode?"
- ↑ Jarden acquisitions history, from Wikipedia
- ↑ Seeking Alpha, "Are Jarden's Earnings Set to Implode?"
- ↑ Jarden 2005 Annual Report, pg. 2
- ↑ Jarden 2006 Annual Report, Selected Financial Data, pg. 25
- ↑ Jarden 2006 Annual Report, Selected Financial Data, pg. 29
- ↑ Jarden 2006 Annual Report, Concentrations of Credit Risk, "Notes to Consolidated Financial Statements," pg. 49
- ↑ Jarden Corp. 10-Q, July 31 2007, Part I Item 2, pg. 21
- ↑ Jarden Corp. Press Release, Winter Sports Update
- ↑ Eric Wolff, The End of Easy Credit, "Are Jarden's Earnings Set to Implode?
- ↑ Jarden Corp. 8-K/A for Aug 8 2007, EX-99.2, "Unaudited Pro Forma Condensed Combined Balance Sheet of Jarden and K2"
- ↑ Clorox 10-K for FY 2006, p.4, data including International Operations)
- ↑ Whirlpool 10-K for FY 2006, data for Home Cooking Appliances segment only, p.2
- ↑ Newell Rubbermaid 10-K for FY 2006, p. 72 (data for Home and Family segment)
- ↑ Newell Rubbermaid 10-K for FY 2006, p. 72 (data for Cleaning, Organization, and Décor segment)
- ↑ Church & Dwight 10-K for FY 2006, p.19
- ↑ Jarden Annual Report 2006, p.11 (data for Branded Consumables)
- ↑ Jarden Annual Report 2006, p.15 (data for Consumer Solutions)
- ↑ Nacco 10-K for FY 2006, p. 36 (data for Housewares only)
- ↑ National Presto at SECInfo.com, 10-K for FY 2006, Footnote 17 (data for Absorbent Products segment)
- ↑ National Presto at SECInfo.com, 10-K for FY 2006, Footnote 17 (data for Housewares/Small Appliances segment)
- ↑ Lifetime Brands 10-K for fy2006, Footnote 27 (data for Food Preparation segment only)
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