CFX - Colfax Corporation

[giofranchi]

I would like to know what people on the board think about Colfax Corporation

 

http://brooklyninvestor.blogspot.it/2013/10/colfax-corporation-cfx.html

 

Thank you! :)

 

giofranchi

[rogermunibond]

You really have to believe in the DBS/CBS and additional acquisitions.  DHR was never cheap but has done the same over 20 years.

[Dustin T]

I've been thinking of making a purchase. I think CFX's margins are compressed right now do to growth and reorganization. I'm a long time DHR owner and tend to believe that given time the margins will probably grow and come closer to DHR's.

 

From what I know about the Danaher/Colfax business system it's very cost conscious which is to me a common thread in many of the great investments from Berkshire all the way back to Standard Oil under Rockefeller.

 

Having the Rales brothers and Thomas Gayner gives them an all star board.

[giofranchi]

I've been thinking of making a purchase. I think CFX's margins are compressed right now do to growth and reorganization. I'm a long time DHR owner and tend to believe that given time the margins will probably grow and come closer to DHR's.

 

From what I know about the Danaher/Colfax business system it's very cost conscious which is to me a common thread in many of the great investments from Berkshire all the way back to Standard Oil under Rockefeller.

 

Having the Rales brothers and Thomas Gayner gives them an all star board.

 

Thank you for the very useful feedback! :)

 

giofranchi

[CorpRaider]

Thanks for flagging GIO.  I've really enjoyed his series of outsiders posts.  The only I've been following is POST with Bill Stiritz who is highlighted in the book.  I'm just watching it and hoping to scoop it up for cheap in a general market downdraft.

[giofranchi]

Thanks for flagging GIO.  I've really enjoyed his series of outsiders posts.  The only I've been following is POST with Bill Stiritz who is highlighted in the book.  I'm just watching it and hoping to scoop it up for cheap in a general market downdraft.

 

Is there already a thread about POST? If not, why don’t you start one? I would follow it with much curiosity and attention! :)

 

giofranchi

 

[Liberty]

I've been thinking of making a purchase. I think CFX's margins are compressed right now do to growth and reorganization. I'm a long time DHR owner and tend to believe that given time the margins will probably grow and come closer to DHR's.

 

From what I know about the Danaher/Colfax business system it's very cost conscious which is to me a common thread in many of the great investments from Berkshire all the way back to Standard Oil under Rockefeller.

 

Having the Rales brothers and Thomas Gayner gives them an all star board.

 

Hi Dustin,

 

What do you know about the new CEO (capital allocation skills, integrity, track record, etc)? Seems like we hear a lot about everybody except him...

 

I've started doing some research on CFX and hope to find out more after listening to the conference calls that are available on the site, but I'm curious to get your opinion.

 

Thanks.

[Dustin T]

I don't yet know a lot about him other than his ties to Danaher. Having read Danaher's annual reports and listened to their conference calls over the years and Colfax's for the last couple. The similarities are deep enough that I view Colfax as a baby Danaher. Their acquisition strategy is usually more of the "bolt on" variety but unlike Berkshire they aren't looking to keep things as they are. They buy when they think they can improve margins. They do cause disruption but to date they have had a lot of success on the execution side.

 

I wish I knew something of his individual track record or integrity, I only know that Mitchell and Steven Rales plucked him from Danaher and installed him as CEO as they own 20% of the company between them I am certain they will ensure he does a good job of representing the shareholders’ interests.

 

I'd be happy to hear your thoughts after you do your research, but I would take a look at what's been written about the Rales brothers as well. They aren’t deeply involved in the day to day operations but I don’t have any doubt they are ultimately in control.

 

 

[Liberty]

Thanks Dustin. What's the best way to learn about the Rales and Danaher? Are they featured in good books or articles that you would recommend? Or is primary material (Ks and Qs) the main way to go? Thanks.

[Dustin T]

There aren't many articles as they shun the spotlight and are good at flying under the radar.

 

http://www.businessweek.com/stories/2007-02-18/a-dynamo-called-danaher

 

http://articles.washingtonpost.com/2008-07-07/business/36862792_1_colfax-raleses-rales-brothers

 

http://www.telegraph.co.uk/finance/newsbysector/industry/engineering/8742092/Colfax-and-the-Rales-brothers.html

 

That should give you some flavor. There is a book that I'd probably buy if it were cheaper, and if it wouldn't just add to my stack of 3 dozen others that I haven't had time yet to read.

 

http://www.amazon.com/Leading-Enterprise-Transformation-George-Koenigsaecker/dp/1563273829/ref=cm_cr_pr_product_top

 

A lot of what appeals to me about both companies comes from my working in manufacturing. There is often a lot of money to be saved by a good businessman, and their culture seems to have tapped into this. These are both great companies that if you can buy at a fair price then at least they can be expected to mirror the S&P but if they continue to perform the way they have historically you get a heads I win, tails I break even situation.

[Grenville]

There aren't many articles as they shun the spotlight and are good at flying under the radar.

 

http://www.businessweek.com/stories/2007-02-18/a-dynamo-called-danaher

 

http://articles.washingtonpost.com/2008-07-07/business/36862792_1_colfax-raleses-rales-brothers

 

http://www.telegraph.co.uk/finance/newsbysector/industry/engineering/8742092/Colfax-and-the-Rales-brothers.html

 

That should give you some flavor. There is a book that I'd probably buy if it were cheaper, and if it wouldn't just add to my stack of 3 dozen others that I haven't had time yet to read.

 

http://www.amazon.com/Leading-Enterprise-Transformation-George-Koenigsaecker/dp/1563273829/ref=cm_cr_pr_product_top

 

A lot of what appeals to me about both companies comes from my working in manufacturing. There is often a lot of money to be saved by a good businessman, and their culture seems to have tapped into this. These are both great companies that if you can buy at a fair price then at least they can be expected to mirror the S&P but if they continue to perform the way they have historically you get a heads I win, tails I break even situation.

 

Appreciate the links! I'm a huge fan of Danaher.

 

Here is a book that talks about Danaher as one of it's examples

Repeatability: Build Enduring Businesses for a World of Constant Change by Zook & Allen

http://www.amazon.com/Repeatability-Enduring-Businesses-Constant-Change/dp/1422143309

[Liberty]

Thanks for the links, Dustin. It does give some idea of the Rales and their approach.

 

Another thing I'm trying to get a better sense of is how much of a moat do they have around their products. With transdigm for example, it's clear that they are the sole maker of many of their products and government certification is a high barrier to entry for new entrants. As long as planes fly, they'll have an aftermarket demand.

 

But with CFX, what provides the moat? I get that they operate in niches where performance and quality matters more than price, which helps margins, but what keeps competition out?

 

Is it that their kaizen processes are easy to talk about but hard to apply consistently, so most competitors are doomed to be stuck at lower margins, which makes the industry less attractive to new entrants, and so CFX can just float on top of the industry thanks to their hard to replicate culture and capital allocations skills, acquiring competitors and then improving their margins?

[Dustin T]

Thanks for the links, Dustin. It does give some idea of the Rales and their approach.

 

Another thing I'm trying to get a better sense of is how much of a moat do they have around their products. With transdigm for example, it's clear that they are the sole maker of many of their products and government certification is a high barrier to entry for new entrants. As long as planes fly, they'll have an aftermarket demand.

 

But with CFX, what provides the moat? I get that they operate in niches where performance and quality matters more than price, which helps margins, but what keeps competition out?

 

Is it that their kaizen processes are easy to talk about but hard to apply consistently, so most competitors are doomed to be stuck at lower margins, which makes the industry less attractive to new entrants, and so CFX can just float on top of the industry thanks to their hard to replicate culture and capital allocations skills, acquiring competitors and then improving their margins?

 

I think you've pretty well nailed my view of CFX and DHR. I would add that a lot of CFX's products are lower quantity higher tech products that require significant outlays to design and tool up to build. Many people can build this stuff but it takes an investment to do it cheaply. I believe their culture will push down the cost and improve the margins. Kaizen isn't rocket science but I've seen personally companies I've worked for do it very well, while others I've worked for have done it pretty poorly.

 

I don't think CFX represents a great margin of safety at today's price, but if I were to add to a position right now it's on my short list.

[Guest ajc]

Colfax to Present at Baird's 2013 Industrial Conference

 

Fulton,  MD (October 30, 2013) -  Colfax Corporation ("Colfax")  (NYSE: CFX), a leading  global  manufacturer  of  gas-  and  fluid-handling  and  fabrication technology products, today announced that it will be presenting at Baird's 2013 Industrial  Conference in  Chicago on  November 6, 2013 at  7:30 am CST (8:30 am EST). 

 

A live presentation of this event can be accessed via Colfax's website at www.colfaxcorp.com under the "Investors" section. 

 

Replays will also be available on the Company's website for 30 days following the event.

[Liberty]

Thanks for the links, Dustin. It does give some idea of the Rales and their approach.

 

Another thing I'm trying to get a better sense of is how much of a moat do they have around their products. With transdigm for example, it's clear that they are the sole maker of many of their products and government certification is a high barrier to entry for new entrants. As long as planes fly, they'll have an aftermarket demand.

 

But with CFX, what provides the moat? I get that they operate in niches where performance and quality matters more than price, which helps margins, but what keeps competition out?

 

Is it that their kaizen processes are easy to talk about but hard to apply consistently, so most competitors are doomed to be stuck at lower margins, which makes the industry less attractive to new entrants, and so CFX can just float on top of the industry thanks to their hard to replicate culture and capital allocations skills, acquiring competitors and then improving their margins?

 

I think you've pretty well nailed my view of CFX and DHR. I would add that a lot of CFX's products are lower quantity higher tech products that require significant outlays to design and tool up to build. Many people can build this stuff but it takes an investment to do it cheaply. I believe their culture will push down the cost and improve the margins. Kaizen isn't rocket science but I've seen personally companies I've worked for do it very well, while others I've worked for have done it pretty poorly.

 

I don't think CFX represents a great margin of safety at today's price, but if I were to add to a position right now it's on my short list.

 

What is your view on CFX vs DHR going forward? Do you think DHR has reached a size where it becomes harder to grow because they need ever bigger acquisitions and there's more competition for those, so valuationd aren't as attractive? So conversely, is CFX more interesting because it's at an earlier stage of thr DHR model..? Or do you see it differently, maybe DHR is in more attractive markets, or diversified enough that it can do a large number of mid-sized acquisitions and still grow quickly that way for a while longer? Or maybe despite the similar model, one company has significantly better management? Anything making DHR less attractive at current price and size?

 

Thanks.

[Dustin T]

Thanks for the links, Dustin. It does give some idea of the Rales and their approach.

 

Another thing I'm trying to get a better sense of is how much of a moat do they have around their products. With transdigm for example, it's clear that they are the sole maker of many of their products and government certification is a high barrier to entry for new entrants. As long as planes fly, they'll have an aftermarket demand.

 

But with CFX, what provides the moat? I get that they operate in niches where performance and quality matters more than price, which helps margins, but what keeps competition out?

 

Is it that their kaizen processes are easy to talk about but hard to apply consistently, so most competitors are doomed to be stuck at lower margins, which makes the industry less attractive to new entrants, and so CFX can just float on top of the industry thanks to their hard to replicate culture and capital allocations skills, acquiring competitors and then improving their margins?

 

I think you've pretty well nailed my view of CFX and DHR. I would add that a lot of CFX's products are lower quantity higher tech products that require significant outlays to design and tool up to build. Many people can build this stuff but it takes an investment to do it cheaply. I believe their culture will push down the cost and improve the margins. Kaizen isn't rocket science but I've seen personally companies I've worked for do it very well, while others I've worked for have done it pretty poorly.

 

I don't think CFX represents a great margin of safety at today's price, but if I were to add to a position right now it's on my short list.

 

What is your view on CFX vs DHR going forward? Do you think DHR has reached a size where it becomes harder to grow because they need ever bigger acquisitions and there's more competition for those, so valuationd aren't as attractive? So conversely, is CFX more interesting because it's at an earlier stage of thr DHR model..? Or do you see it differently, maybe DHR is in more attractive markets, or diversified enough that it can do a large number of mid-sized acquisitions and still grow quickly that way for a while longer? Or maybe despite the similar model, one company has significantly better management? Anything making DHR less attractive at current price and size?

 

Thanks.

 

I think CFX has more upside, but DHR is safer. The management team at DHR has been tested and proven their worth over the course of a few decades. CFX has grown so much lately and I think growing to fast can destroy a culture. They obviously have a new CEO who while a DHR guy presumably hand picked by the Rales bros. Hasn't proven he can execute. If though they can replicate DHR's compression of cost's and expansion of margins then it'll be a steal. DHR's size as you said can retard their growth but I think they have plenty of growing room, it'll just slow going forward.

[giofranchi]

Here is a book that talks about Danaher as one of it's examples

Repeatability: Build Enduring Businesses for a World of Constant Change by Zook & Allen

http://www.amazon.com/Repeatability-Enduring-Businesses-Constant-Change/dp/1422143309

 

Thank you for the recommendation! :)

 

giofranchi

[Guest ajc]

Steven Simms (CEO) and Scott Brannan (CFO) presented and took part in a short Q&A session at the Baird Investor Conference today.

 

The audio webcast and presentation can be found here: http://ir.colfaxcorp.com/events.cfm

[Guest ajc]

"Mitch Rales of $CFX says he wants to get leverage down; become an investment grade co (BB now) #baron2013"

 

from @ldelevingne on Twitter at the Baron Investors Conference last week.

[Guest ajc]

Colfax 2013 Annual Investor Day Presentation (December 17th, 2013)

 

Opening Remarks

- Steve Simms, President and CEO

 

Business Segment Presentations

- Clay Kiefaber, EVP and CEO of ESAB

- Carl Pickard, SVP Global Sales and Marketing of Colfax Fluid Handling

- Ian Brander, CEO of Howden

 

Business Development

- Dan Pryor, EVP Strategy and Business Development

 

Colfax Business System and Supply Chain

- Steve Wittig, SVP CBS and Supply Chain

 

Financial Update

- Scott Brannan, SVP and CFO

 

Summary and Outlook

- Steve Simms, President and CEO

 

 

Full slideshow available here: http://ir.colfaxcorp.com/events.cfm

 

[Liberty]

Thanks, I know what I'm doing the next 3 hours...  :)

[Liberty]

Well, you got me down the rabbit hole. Spent part of last night and this morning listening to that conference, and now I found one by Danaher that is just as long:

 

http://phx.corporate-ir.net/phoenix.zhtml?c=82105&p=irol-calendar

 

(click on "past events", it's the one from Dec 12)

[jay21]

There aren't many articles as they shun the spotlight and are good at flying under the radar.

 

http://www.businessweek.com/stories/2007-02-18/a-dynamo-called-danaher

 

http://articles.washingtonpost.com/2008-07-07/business/36862792_1_colfax-raleses-rales-brothers

 

http://www.telegraph.co.uk/finance/newsbysector/industry/engineering/8742092/Colfax-and-the-Rales-brothers.html

 

That should give you some flavor. There is a book that I'd probably buy if it were cheaper, and if it wouldn't just add to my stack of 3 dozen others that I haven't had time yet to read.

 

http://www.amazon.com/Leading-Enterprise-Transformation-George-Koenigsaecker/dp/1563273829/ref=cm_cr_pr_product_top

 

A lot of what appeals to me about both companies comes from my working in manufacturing. There is often a lot of money to be saved by a good businessman, and their culture seems to have tapped into this. These are both great companies that if you can buy at a fair price then at least they can be expected to mirror the S&P but if they continue to perform the way they have historically you get a heads I win, tails I break even situation.

 

Thanks for the links.  I always enjoy reading about these outsider type companies.  I can add this and DHR to my growing list with Malone's companies, TDG, etc.

 

There is a recent VIC writeup:  http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/92032

 

It seems like there are two levers here for outsized performance at this price.  Continued smart acquisitions/capital allocation and this bullet from the writeup:

 

"Substantial margin improvement potential. Management noted it remains in the early innings of its operational improvement plans and the Charter integration and restructuring initiatives appear to be on track. Management expects to drive $55-65 million in cost savings in 2013 (or ~$0.40 of accretion), with another $65-75 million realized in 2014 and 2015. Operational improvement opportunities will be driven by implementation of the company’s CBS (Colfax Business System) toolkit and lean processes, manufacturing plant consolidations, improved sourcing/supply chain, reduced headcount, and new leadership. Longer term, management sees Fluid Handling margins reaching 20%+ (currently mid teens), Howden margins expanding to mid teens (currently low teens), and ESAB margins moving to low teens (currently high single digits).  The company targets large markets where development and distribution of technologically differentiated products provide competitive advantages and lead to market leadership and higher, sustainable margins. Furthermore, the company operates in fragmented markets with no other competitor having the global/national presence that it has. The company faces a bit greater competition in the welding end markets."

[Liberty]

Thanks for the links.  I always enjoy reading about these outsider type companies.  I can add this and DHR to my growing list with Malone's companies, TDG, etc.

 

There is a recent VIC writeup:  http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/92032

 

Thanks. The VIC writeup mentions Roper Industries (ROP), which is also on my list of companies to research, along with Ametek (AME). At first glance, they seem to have a model similar to DHR, CFX, TDY, TDG...

 

I'm curious to know if anyone here is familiar with ROP and/or AME and what they think of them. Are they in the same class as other outsider businesses?

[Dustin T]

Just opened a position in CFX, hopefully at the conf. call tomorrow they will give me good news.