Will Pitching Camp in Troy Yield Profits?

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Like the “face that launched a thousand ships” that this company conjures, Helen of Troy (NASDAQ: HELE) has an equity worth more than a cursory look. I won’t dare to venture on its entire product line, as this would entail a Homeric odyssey of non-durable consumer goods with multiple brands, not a few of which curiously rhyme with Ajax, Achilles, and Agamemnon. Suffice it to say that this company operates in three segments: personal care, housewares, and healthcare/home environment. Most of its product brands are homegrown, but still, Helen of Troy derives significant revenue from licensed products of major manufacturers such as Revlon (NYSE: REV) and Procter & Gamble (NYSE: PG).

Helen’s banner flies . . .

Helen of Troy, based in El Paso, Texas, delivered hearty top line and bottom line results in its fiscal 2013 fourth quarter, which ended this February. Its net sales revenue hit a record $326.0 million, up 10.9% from the $294.0 million posted a year earlier. A banner net income of $31.5 million or $0.98 per fully diluted share was likewise achieved. This compares with the $29.3 million or $0.92 per diluted share registered in the same quarter a year ago.

2013 was a record year as well as the company’s sales totaled $1.29 billion, up 9% from $1.18 billion in FY 2012. Net income for FY 2013 rose to $115.7 million, or $3.62 per fully diluted share, from $110.4 million, or $3.48 per fully diluted share in the previous fiscal year.

The healthcare/home environment business segment contributed 41.8% to the company’s FY 2013 total revenue and also posted the biggest sales gain at 20.3%. Housewares accounted for 20.1% of total sales and had a 9.1% sales advance for the year. The personal care segment, which brought in 38.1% of total revenue, was the weakest, as its sales showed a decline of 1.2%.

. . . As Revlon and P&G falter

This weakness is reflected in the recent lackluster performance of Revlon, the brand of cosmetic products that House of Troy personal care portfolio is likewise carrying. Revlon ended the first quarter of 2013 with nearly flat sales of $331.9 million compared to 2012's first quarter $330.7 million. The cosmetics manufacturer posted a net loss of $6.9 million or -$0.13 per diluted shared against an $8.5 million in net income, or $0.16 diluted EPS in the year-earlier quarter.

The Vicks brand of Procter & Gamble was one of the better brands for Helen of Troy. Sales of Vicks humidifiers increased during the fourth quarter, boosted by a rise in illness in the U.S. during the cold and flu season. Another welcome boon for House of Troy was the PUR water purification products that it acquired from P&G in late 2011, which contributed significantly to the increase of total sales for FY 2012.

Performance-wise, Helen of Troy appears to have an edge over P&G as it does compared with Revlon currently. For the fiscal third quarter, Procter & Gamble reported that its net income rose to $2.57 billion, or $0.88 per share, from $2.41 billion, or $0.82 per share in the year-ago quarter. The downside was that the company barely missed their revenue expectation of $20.72 billion, with P&G generating $20.6 billion for the period. Another source of disappointment is P&G’s $0.69-$0.77 per share earnings guidance for the fiscal fourth quarter, which compares with analysts’ estimates of $0.82 per share.

Final take: camp like the Greeks

Helen of Troy, for its part, seems guarded on its FY 2014 prospects, noting the difficult retail environment, among other factors. For the fiscal year, the company expects $1.29 billion-$1.32 billion in sales and $3.50-$3.60 diluted EPS. Its conservative stance notwithstanding, what is appreciable for this company as a stock pick is its strong balance sheet, with its $12.84 million total cash and no debt. It has also improved its receivables turnover to 60.6 days from 62.5 days, and has committed to further step up measures to control operating costs.

Additionally, substantial growth can be brought in by a new 1.3-million-square-foot distribution center that the company is completing in Olive Branch, Mississippi. Moreover, expectations of gains in U.S. household formation provide a bullish factor for the company’s housewares and home environment products. And lastly, with a trailing 12-month P/E of 9.71, the domain of Helen of Troy indeed seems worth camping in for profits, just like what the Greeks did in Homer’s epic tale.

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Arturo Cuevas has no position in any stocks mentioned. The Motley Fool recommends Procter & Gamble. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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