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Tough love
My best friend drives me crazy. Usually by being right. You know the type: fixes his own cars (including a vintage pickup truck that I'm very envious of), remodels his own house, grows tomatoes the size of my fist, is building a boat in his basement. The kind of talented guy that makes the rest of us poor slobs look terrible to our wives.
He and I have been trying to rescue the 20-year old deck falling off the back of my house. So far this year, we replaced rotting boards, been chased off by huge carpenter bees, coated the damn thing twice with some hideous gook and replaced half the nails with fancy, over-priced screws. It still looks like nine miles of bad road.
That's when Mr. Competent mentioned U.S. Plastic Lumber's decking boards. "Doesn't rot, doesn't split, bugs can't eat it." But it looks like cheap vinyl siding, right? And it's a pain to use. "Nah. Saws like wood, takes screws and nails like wood, paintable like wood." So why didn't he tell me about these guys last spring? "Didn't ask."
The right stuff
U.S. Plastic Lumber (NASDAQ: USPL) makes structural and nonstructural plastic lumber and provides recycling services. Made from 100% recycled high-density polyethylene, its lumber comes in various colors, profiles, shapes, and standard lumber dimensions and offers an alternative to pressure-treated lumber or rain forest hardwoods.
USPL's eight plants give it the largest production capacity in the plastic lumber industry. Its strategy of locating plants throughout the United States and producing its lumber near its distribution networks significantly reduces transportation costs, giving USPL a strong competitive advantage.
USPL is growing through internal expansion and strategic acquisitions, each serving to complement the other while strengthening each line of business. It recently completed the acquisition of Brigadoon Industries, Inc., the leading American manufacturer of plastic corner-board packaging products for the produce industry, with annualized revenues of approximately US$6 million.
In addition to the acquisition of Brigadoon, USPL has entered into an agreement to acquire an additional 140,000 sq. ft. manufacturing plant in Ocala, Fla. USPL will combine the operations of Brigadoon with an expansion of its Carefree deck board, made entirely from recycled plastics, at the new location. During the second quarter, USPL also completed the acquisition of Barbella Environmental Technology, Inc., an environmental services company, with annualized revenues of approximately US$20 million.
The payoff
All this expansion has paid off in the best way, with record increases in revenues, operating income and EBITDA for the third quarter of 1999 and continued expansion of plastic lumber production.
Revenues for the third quarter of 1999 were up 146%, US$39.6 million compared to US$16.1 million for the same quarter in 1998, while operating income for the third quarter was US$6.2 million, or 15.7% of revenues, compared to US$54,000, or .3% of revenues, for the same quarter in 1998.
Net income for the third quarter was US$2.9 million or US$.09 per share, on a diluted basis, compared to a net loss of US$355,000 or US$.02 per share, in the same quarter in 1998.
Keep in mind that these results exclude some hefty merger costs of US$810,000 related to acquisitions completed during the quarter and include a provision for income taxes at an effective rate of 38%. Count the merger costs back into the mix, along with the actual provision for income taxes, and net income for the third quarter was US$3.3 million or US$.11 per share, on a diluted basis.
During the third quarter, USPL completed the acquisition of California plastic recyclers, Eureka Plastics of California, Inc. and Ecosource Corporation, with combined annualized revenues of approximately US$8 million. USPL also entered into an agreement to acquire a 143,000 sq. ft manufacturing plant, located on 10 acres in Fontana, CA. USPL will operate and expand these plastic-recycling operations to supply raw materials for SmartDeck and Carefree deck board and other plastic products, to be manufactured at the new Fontana facility.
USPL President and CEO Mark S. Alsentzer credits this solid quarter of revenues and income growth to "Our strategy of building regional manufacturing facilities and acquiring raw material suppliers, which is proving to be very effective" providing reduced delivery times as well as lowering costs for raw materials and transportation.
According to Alsentzer, "this year's expansion initiative--will more than triple our production capabilities going forward. This increased capacity coupled with our new manufacturing plants in Florida and California and the expansion of our Chicago plant will permit USPL to meet the increasing demand for our products from new and existing distributors throughout the entire country. With this increased capacity USPL expects to more than double the number of distributors and retailers handling our products by the middle of the year 2000."
Big leagues
USPL is beginning to gain the respect and recognition it deserves. This July, it was added to the Russell 2000 index of small cap companies.
But wait, it gets even better. Already fed up with huge fluctuations in cost, international building material behemoth Home Depot has announced that it is yielding to pressure from the tree huggers and will stop selling old-growth lumber products.
These guys are going to be giants, US$30 or US$40 over the next 18 months. I recommend buying U.S. Plastic Lumber (NASDAQ: USPL) up to US$20, with a 25% trailing stop.
Do you see a theme developing here? Strong companies with profits now and growth in the future. Innovators? Certainly. But real products and real customers. And real profits. It's a combination that's tough to beat. And speaking of tough--
Please read on...
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