Saturday, November 26, 2005

Lancaster Colony

Lancaster Colony (LANC)

As highlighted in Barron’s November 28th edition, LANC once again has increased the dividend, as it has annually for 43 consecutive years. In addition, the company has declared a special $2.00 dividend to be paid Dec. 30th. This represents about 45% of its cash on hand as of Sept 30th.

LANC is a diversified manufacturer and marketer of consumer products, including specialty foods for the retail and foodservice markets; glassware and candles for the retail, industrial, floral and foodservice markets, and automotive accessories for the original equipment market and aftermarket.

The company is cash-rich and completely debt free, largely as a result of its strong free cash flow generation. The company exhibits very strong discipline in its acquisition strategy, and seems to evaluate many opportunities but accepts very few.

Free cash flow margins have dropped to about 6% from an historic level of about 8-9%, yet over the last five years, the business has generated $568 million in FCF which represents 48% of its current enterprise value or 42% of its current market capitalization.

Return on equity was 15.8% as of the last fiscal year ending June 30th. Return on invested capital was 18.6%. Cash ROE (or CFFO/ beginning equity) was 46.6% for the trailing twelve months.

In the last five years, the company has returned over $200 million to shareholders through its active share buyback program.

Insiders own over 26% of the company.


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