NEW YORK (TheStreet) -- Jarden's (JAH) strong brands, diverse products, market leadership in a variety of categories and well-chosen acquisitions continue to allow this niche consumer products company to thrive -- even amid the continued weakness in consumer spending and higher ocean freight costs.
Highlighting the company's position recently was Jarden's strong, second quarter, with adjusted earnings of 83 cents a share vs. the consensus estimate of 74 cents a share, and net sales increase of 22% including 8.7% organic growth.
"The outdoor solutions segment in particular did well, likely the result of consumers spending more on outdoors entertainment that isn't going to break the bank," Morningstar analyst Jeremy Cohen told
. Well-known Jarden brands include Crock-Pot, Mr. Coffee and K2.
Meanwhile, Jarden continues to see expanding product diversification with its acquisition of Paris-based baby and home care products company Mapa Spontex -- completed in April and one of a series in the company's history -- and maintains four strong buy recommendations, two moderate buy recommendations and two hold recommendations.
Like other rating agencies, Moody's -- which has a positive outlook on Jarden -- notes the company's relatively high leverage given its acquisitive history. However "we do not expect Jarden's leverage to increase by more than half a turn in the near term due to our expectation that the proposed funding for the acquisition and the expected earnings potential of Mapa," analyst Kevin Cassidy and John Diaz wrote in a research report shortly after the acquisition was proposed late last year.
Last week, Jarden CEO Martin Franklin spoke with
and provided more color on the company's activities in the coming quarters and beyond, in a conversation about the company's product demand, private label competition, acquisition plans and negotiations with powerful retail customers like
. Read on for our Q&A....
TheStreet: Consumers may want to spend more, yet they're still worried about job security. Are you scaling back on certain products and expanding on others?
Martin Franklin: I think where we are versus last year, people who have jobs are beginning to spend again. I think that people don't feel as unsecure as they did a year ago. Obviously with a high level of unemployment -- until you see the real unemployment rates tick down, I think you're still going to have a slow growth in GDP and consumer demand. But the reality is -- and we see this at our retails -- the whole idea of people spending on affordable luxuries -- there's a pent-up demand. That's having a positive impact on our business. There's a reason that our organic growth was between 8% and 9% in the last quarter -- that's driven by demand.
Martin Franklin, Chairman and CEO of Jarden
TheStreet: Given that the economy is still experiencing vulnerabilities right now, are private label products still a threat for a company like Jarden?
Private label for us has actually been an opportunity in the sense that because we've invested in our brands and we've invested in new product development, we've taken share because retailers have seen that they can make more money selling our products than selling private label. So that's a very good thing for us. In a sense, when you have a close relationship to a retailer, the better you perform, the easier it is for them to give up private label business to us as a company.
So that's actually been a growth driver for us.
It's the opposite of being a threat. It's very much an opportunity. And I think in an environment where consumers are looking for value, there's no question -- you just have to look at the performance of our products at retail to see the evidence that the consumers want to buy something with a brand that they trust when they're being careful with their money, as long as they perceive that they're getting good value. Really, that's what Jarden's all about. It's hitting price points with products that give good value with a brand. So we're in a sort of sweet spot right now in terms of where we can play with the consumer.
TheStreet: You've been making strides in diversifying your Mapa Spontex acquisition. But there are concerns about debt load and refinancing difficulties and how that could cause the company to miss out on other acquisition opportunities. What are your thoughts on this?
Franklin: I'm not sure who would have such a concern because the reality is, all the refinancing that we ever wanted to do we've already done. And our bonds are trading today at a yield of around 7%. We're in good stead to get upgrades from some of the credit rating agencies and the reality is our access to credit has never been stronger. So the only restraints are the ones that we put on ourselves because we're being very disciplined about keeping our leverage ratio very conservative. So missing out on acquisition opportunities is not a factor. That's the first thing I would say.
Also, we have been very disciplined in how we make acquisitions, and as you know, Mapa Spontex was our first acquisition in two and a half years and was a very good one for the company. But unless we see similar quality opportunities, we don't feel any pressure at all to make acquisitions. In particular, I don't think we have any interest in parting with equity in the company in the $30 range. It's just too cheap. So we feel very good about where our business is. Our business is, frankly, doing better than the stock market and at some point those things will reach equilibrium, I'm sure.
TheStreet: How are you ensuring that you get your end of the bargain when it comes to negotiating with large and powerful retailers like Walmart or Target on issues such as pricing and shelf space?
Franklin: I would say two things. First of all, price is an everyday discussion with our retail customers. The second thing I would say is the reason we've been so successful at mass -- and obviously it's no great secret that Walmart's our largest customer -- the reason we perform so well is we hit the price point that they want and provide them with the margins that they need by having an infrastructure that is able to keep costs very much under control. And it's our discipline, our internal disciplines that enable us to make a decent margin, while at the same time providing the price points that give them the ability to sell their products at the retail price points that they're looking for. That's an ongoing process.
The fact that, for example, if costs go up in Asia, Walmart and Target have as many people on the ground in Asia as we do and they're acutely aware of pricing pressures when they occur. So it's very much an open-book discussion; and I can tell you that the relationship that we have as a core strategic vendor with the major mass retailers make these discussions very level and open. Nobody's trying to hide anything and it's worked very well for the company. If it hadn't worked very well, we wouldn't be doing as well with these retailers as we're doing.
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