A key purchase for this 104-year-old packaging giant helped lift sales and cash flow in the latest quarter.
RICHARDS PACKAGING INCOME FUND (symbol RPI.UN on Toronto (Units outstanding: 10.9 million; Market cap: $269.8 million; www.richardspackaging.com) is a full-service packaging distributor to small- and medium-sized North American businesses. The fund first sold shares to the public at $10 a unit, and began trading on Toronto in April 2004.
Richards distributes more than 5,000 different types of rigid-plastic containers. They include bottles, caps, trays and food cups. The fund gets these containers from over 600 suppliers and also makes some at its own manufacturing facilities. Richards’ customers include over 13,300 regional food and wine and spirits makers as well as cosmetics and pharmaceutical companies.
The fund also offers design services and helps customers choose the appropriate packaging in terms of usability, child resistance and brand image. In addition, through its logistics-management business, it tracks its clients’ packaging inventory for them and makes deliveries when they need it.
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The fund owns McKernan, the largest buyer and reseller of surplus packaging in the U.S. That material, either unused or obsolete, would otherwise sit unwanted in company warehouses or factories. Richards paid $30 million U.S. for McKernan in October 2007.
The fund is the only North American distributor of rigid-plastic packaging containers that has its own manufacturing capabilities. It does that at three facilities, which make a range of plastic containers using 40 moulding machines.
The fund gets about 45% of its sales from Canada and 55% from the U.S. Overall, roughly a third of Richards’ sales are made in Toronto, Montreal, Winnipeg and Vancouver, and another third in Los Angeles, Reno, Nevada, and Portland, Oregon.
Richards’ revenue rose 36.9%, from $182.3 million in 2011 to $249.4 million in 2015. That’s partly due to its October 2015 purchase of Healthmark Services Ltd. for $16.8 million. This firm makes sterile intravenous, chemo and oral drug packaging and dispensing systems.
Cash flow rose 2.4%, from $1.25 a unit in 2011 to $1.28 a unit in 2012. Cash flow then fell to $1.09 a unit in 2013, but turned around and rose to $1.23 a unit in 2014, and to $1.52 per unit in 2015.
In the three months ended June 30, 2016, revenue jumped 20.3%, to $72.5 million from $60.3 million a year earlier. That’s mainly due to the Healthmark acquisition. Cash flow rose 40.3%, to $6.2 million, or $0.53 a unit, from $4.4 million, or $0.37 a unit.
In 2011, Richards decided to remain an income trust despite Ottawa’s move to drop tax breaks for businesses structured that way. Currently, the fund pays investors a monthly distribution of $0.0935 a unit. That yields 4.6% a year. In the latest quarter, it paid out 54% of its available cash to unitholders. That gives it room to maintain its current payout. As well, its long-term debt of $64.2 million is a moderate 24% of its market cap.
Richards operates in a very competitive industry, but it continues to benefit from its focus on niche markets and its longstanding relationships with customers—it was founded in 1912. Also, the high U.S. dollar continues to enhance the contributions of its operations in that country.
I’ve had Richards in my portfolio for years. I am glad to see you covering it. The stock doesn’t seem to get a lot of attention in the press, even in Canada.
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I’ve had Richards in my portfolio for years. I am glad to see you covering it. The stock doesn’t seem to get a lot of attention in the press, even in Canada.