Envelope-maker Supremex has lifted its sales by buying regional manufacturers in the U.S. and Canada. Its new focus on packaging for e-commerce and online shopping has also lifted earnings.
SUPREMEX (symbol SXP on Toronto; www.supremex.com) is a leading North American maker of envelopes, and also sells packaging and specialty products. The company has plants in seven Canadian provinces and two in the U.S.
Supremex converted from an income trust to a conventional corporation on January 1, 2011.
In 2011, the company had revenue of $143.9 million. That fell to $131.9 million in 2013, and to $129.0 million in 2014. The main reason was a steady decline in the use of envelopes by businesses and by individuals (due to email and the Internet), especially in Canada.
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Supremex reported sales of $142.3 million in 2015. The main reason for the rebound was the company’s expansion into the U.S., combined with a rising U.S. dollar.
On October 8, 2015, Supremex acquired Classic Envelope Inc., a manufacturer of envelopes and letterhead based in Massachusetts and serving the greater Boston and New York City areas. Classic has yearly revenues of $12 million U.S.
Also, on December 1, 2015, Supremex purchased the assets of Premier Envelope Ltd., a maker of envelopes, principally operating in Western Canada, with annualized revenues of approximately $12 million.
In the three months ended December 31, 2015, Supremex’s revenue rose 17.7%, to $41.3 million from $35.1 million a year earlier. Sales rose 2.4% in Canada, to $29.0 million, mostly due to the Premier acquisition.
In the U.S., sales jumped 129.4%, to $9.1 million. That was in large part due to newly purchased Classic Envelope, as well as improved revenue from its existing Buffalo operations. Overall sales of packaging and specialty products rose 13.0%, to $3.1 million.
Supremex earnings in the latest quarter rose 40.7%, to $3.8 million, or $0.13 a share, from $2.7 million, or $0.09 a share. Profits rose more than revenue due to the higher contribution from the U.S. market and improved operating performance.
The overall use of mailing envelopes in North America by businesses and by individuals continues to decline. However, Supremex is now reported rising sales in part because it focuses on the segments of the industry that are growing. They include packaging for e-commerce and online shopping shipments. For example, it makes polyethylene bags for courier applications, and bubble mailers and boxes for shipping items bought on the Internet.
Supremex’s $28.7 million of long-term debt is a low 18.6% of its market cap. The stock yields 4.0%.
The company’s growth by acquisition adds risk, but it continues to successfully integrate its recent purchases. The envelope business is essentially a commodity business, but Supremex’s management has proven it can gain market share. It can also move quickly into areas such as packaging for online shipping.
Supremex is okay to hold for aggressive investors.
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