CFI - Culp Inc.

[Cervelo]

My first post on here and I will start with an investment idea. Found the web-page by reading Manual of Ideas which I highly recommend.

 

Culp Inc

 

Background

With four decades of innovation and quality, Culp (NYSE: CFI) supplies a wide range of mattress and upholstery fabrics across the globe. From our headquarters in High Point, NC, we carefully manage a fully integrated platform of manufacturing and distribution facilities strategically located in the U.S., China, Canada and Poland. Our robust supply chain allows us to quickly respond to the needs of our customers. We deliver fashion-forward, stylish fabrics with broad appeal to the largest home furnishing retailers and manufacturers.

 

Culp has evolved from a regional supplier to a global partner for a wide range of customers. Founded by Robert G. Culp, Jr. in 1972, Culp’s focus on continuous improvement in its manufacturing operations and a trend-savvy design team helps customers drive sales and grow market share on a global basis. At Culp, everything we do, from logistics to quality control, reflects a clear understanding of our customer’s business objectives.

 

A few numbers to chew on:

1.Current market cap is $216mil

2.$26 million in net cash and management has stated that anything over $25 million will be used for buy backs or dividends if no growth or acquisition potential arises. Just paid a $0.40 special dividend and is investing $9-10 million in capital expenditures this year which will mainly be funded through free cash flow.

3. Return on capital has been north of 26% for the past 3 years

4. Margins were down last year due to the need to outsource some manufacturing due to increased demand. Also had to pay more overtime due to increased demand. This has resulted in the current capital expansion.

5.Currently trading at a forward p/e of less than 11.5X

6. Will be debt free by August 2015 and generate good free cash flow. Provides a good margin of safety.

 

A couple other comments:

Founding family still owns a good chunk of the business and the founders son is moving up the ranks (owner operated). Bonus compensation is tied to Return on Capital therefor is shareholder friendly. Finally, Markel (MKL) has picked up a small portion of their shares over the past two quarters (see Markel 13F), only speculation but are they considering this as a potential buy for Markel Ventures?

 

Since this is my first post thoughts and comments are much appreciated.

[mcliu]

Welcome. Good post.

 

Why did margins improve so much from 2010 onwards?

[gym97]

They also have $45.7 million in tax loss carry forwards. They don't pay any cash taxes and don't expect to for a few more years.

[Palantir]

Good find!

[Cervelo]

Welcome. Good post.

 

Why did margins improve so much from 2010 onwards?

 

Honestly I am not too sure but I think that is the value of this site; other people may pick up on something that will make me dig deeper and learn more. I will find out why are get back to you. Was on holidays hence the reason for the long delay.

[jouni1]

a half decent article on culp:

 

http://ibd.morningstar.com/article/article.asp?id=624003&CN=brf295,http://ibd.morningstar.com/archive/archive.asp?inputs=days=14;frmtId=12,%20brf295

[gym97]

has anybody thought about valuation?

 

i like management's "attitude" but i think this is a 10% per year type investment. this is not a double anytime soon..