Kaydon disappoints, for now, but watch how the wind blows
This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts.
From Times staff writer Edward Silver, who follows green-investing trends:
Kaydon Corp.’s wind-power business fanned interest in its shares this spring. But like some other companies with green in their mix, the firm’s mainstream businesses now are putting a brake on growth. And that has taken a blade to the stock price.
Tagged as an industrial components maker, Kaydon owns half the U.S. market for ball bearings that allow wind turbines to cut the air with high power and low friction.
The Ann Arbor, Mich., company’s second-quarter results, reported Tuesday, made clear that the wind build-out still is in full swing. Kaydon said wind-power sales are likely to top $90 million this year, almost triple the haul in 2007.
Unfortunately, that segment is a fraction of Kaydon’s total sales -- only about 7% at the start of the year, although that’s likely to double by year’s end. Between now and then, however, Kaydon expects tepid returns in its mainstream markets --aerospace and electronics among them -- and funding delays in, of all things, its military contracts. And the high price of steel is creating stress on the cost side.
Although second-quarter profit of 64 cents a share, on sales of $140 million, nosed ahead of forecasts, investors focused on the outlook. The shares dived $7.64, or 13.7%, to $48.31 after the report Tuesday, wiping out the last of their year-to-date gain. They eased further on Wednesday, to $48.24.
Wind has hit the energy landscape this year like a bracing squamish. T. Boone Pickens, once identified solely with oil, has had a notable influence, throwing billions of dollars at a massive turbine project in Texas and proselytizing politicians.
But stymied investors know that wind pure plays are scarce in the U.S. Firms raising wind units can’t escape outsize costs for materials and cooling demand in their traditional lines. General Electric Co. is the poster child for the problem: Its windmill business is No. 2 worldwide to Denmark’s Vestas, but that hasn’t made up for GE’s woes in other areas, such as home appliances.
Up to now, Kaydon has been known for strong profit margins, reflected in the stock’s lofty price-earnings ratio of around 20 based on 2008 estimates. Those margins may wilt some in the second half. Yet the company now boasts its biggest order backlog ever -- stuffed, of course, with wind deals.
Other positives include cash of $8 a share on the balance sheet and a rising dividend.
The longer-term bull case, though, is mostly about the company’s positioning in renewables. As foreign windmill giants invade U.S. territory, looking for domestic suppliers, they know where to find Kaydon.