Wednesday, March 28, 2012

Conrad Industries ($CNRD) - Highlights from 2011 Annual Report

One of our micro-cap long ideas, Conrad Industries published its 2011 Annual Report today. I'm going to go over the highlights, and then do another post later with thoughts on valuation and the long thesis. The company had record performance last year:

"[W]e achieved revenues of $246.5 million [up 78%], net income of $19.2 million [up 86%], EBITDA of $33.6 million [up 70%]..."
One of the big events last year was the flooding along the Mississippi. (John McPhee warned us that this would happen!) Anyway, Conrad's ability to react to this without missing a beat was amazing:
"During the second quarter of 2011 we were affected by rising water levels along the Mississippi and Atchafalaya Rivers. The primary adverse impact was the temporary suspension of operations at our Morgan City shipyard which is located on the Atchafalaya River outside the protection of the levee system. [W]e constructed our own levee system to protect our Morgan City shipyard. This resulted in no property and equipment damage and also allowed us to return to full operation with minimal clean-up, months sooner than otherwise. We relocated all of our production and support personnel and many of our projects to our other shipyards and continued operations at a minimally reduced level for approximately forty-five days. We resumed limited operations at our Morgan City shipyard during middle of June and were fully operational at this yard by July. All of our other yards remained fully operational. Due to the efforts of our people to plan for protection and move projects to other facilities, there was only a minimal impact on our profitability and no material adverse effect on our Company. Additionally, we were able to keep our people working and we were able to meet the delivery deadlines committed to customers."
What I really wanted to see was share buybacks, and they did not disappoint. They bought back a total of $3.6 million in stock in 2011, which is equal to 3.9% of the end of year market capitalization. Not bad for a company that survived a flood and also nearly doubled revenue and net income. Particularly impressive was the pace of share repurchases at the end of the year:
"During the third quarter of 2011, we purchased 81,386 shares at an average price of $13 per share. During the fourth quarter of 2011, we purchased 157,444 shares at an average price of $15 per share."
Shares were offered at $14.93 at the end of the day - cheaper than where the management of this very conservative company bought back nearly 5% of the public float in the fourth quarter alone. The previous buyback authorization was nearly exhausted, so on January 17, 2012 the board authorized an additional $5 million in repurchases. Note that the company has historically been rather timid at share buybacks; however, management is "currently engaged in a detailed business planning process to identify potential uses of the Company’s cash."

In addition to the share repurchase the company has also announced capex plans for 2012:
"Our Board of Directors has approved a $20.8 million capital expenditure program for 2012 which includes a contract we entered into July 2011 to purchase 50 acres of property adjoining our Conrad Deepwater facility for approximately $5.5 million which is subject to customary closing conditions..."
Other notable items:
During the year, we added $144.2 million of backlog to our new construction segment all of which is from other commercial contracts. This compares to total contract signings of $139.0 million during 2010. Our backlog was $47.1 million at December 31, 2011 as compared to $89.5 million at December 31, 2010.

During 2011 we delivered 47 vessel construction jobs comprised of 2 crane barges, 2 ferries, 9 LPG barges, 2 tow boats, 9 deck barges, a spud barge, 9 30,000 bbl. tank barges, 2 10,000 tank barges, 5 hopper barges, 3 striker barges, a push boat and 2 docking barges.

At December 31, 2011, 91.2% of our vessel construction backlog was from other commercial contracts, 7.5% was from government contracts and 1.3% was from energy contracts. This compares to backlog at December 31, 2010 of 58.9% other commercial and 41.1% government. Subsequent to year end, we signed contracts totaling $61.8 million which includes the sales of six of the stock barges in progress at December 31, 2011. Our estimated backlog at March 31, 2012 is $68.7 million.
When we first mentioned Conrad a year ago, it was trading at $10. It is almost as cheap now at $15, valuation wise, as it was then. More on that later.

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