Weather Trumps GDP For Brands Giant Jarden

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2013: A Look Back And Ahead Jarden (JAH) isn't a household name. But many of its brands are.

The diversified consumer products firm owns more than 120 lines, including Mr. Coffee brewers, Sunbeam kitchen mixers, Coleman camping tents, First Alert smoke detectors, Bicycle playing cards and Diamond kitchen matches and plastic cutlery.

The company was born when Ball Corp. (BLL) spun off its canning jars business in 1993. That firm, Alltrista, changed its name in 2002 to Jarden — the "jar" an homage to that original Ball jar, and the "den" a reference to the main living space in the home.

Since then, it's bought new product lines and expanded its geographic reach. Its most recent big acquisition was the $500 million deal for the European baby products and home cleaning supplies maker Mapa Spontex.

Jarden Chairman Martin Franklin and CEO Jim Lillie spoke with IBD about consumers' moods, the effect of light winter snow on their high-margin ski business, and whether investors understand the company.

IBD: The economy is improving, but we've been saying that for a while. What is the mood of consumers

Franklin: Our view is that 2013 could well shape up to be a very good year from a consumer perspective. There are some years we have to push our management teams overall, and there are some years we have to temper for more conservatism. I would put our company in the latter bucket this year. We're seeing pretty strong demand for 2013, and we're trying to take a pretty sanguine view of that so that we can beat our expectations rather than try to create stretch goals.

Lillie: Obviously, there are pockets around Europe where the economy is not as strong and they're not on the rebound that you're seeing in the States.

But we're seeing good growth in product areas, particularly in our seasonal staples area, like baseball equipment. During the downturn, we saw people purchasing products at a lower price point. And so we've seen a return of items like carbon-fiber baseball bats.

We've launched new initiatives into football.

Our tailgating products are performing very well.

Even product lines other companies gave up on — things like home canning and fresh preserving — we've seen a renaissance in that area over the last few years. IBD: What regions are doing well

Lillie: North America is performing well for us, as is Latin America. Our business in Asia is doing very well.

But we're not immune to some struggles in the Mediterranean-based countries. Greece, Italy and Spain have struggled a bit, whereas Northern Europe has performed pretty well for us. We've budgeted pretty conservatively in Europe so we're not chasing results. And so we've tended to outperform our conservative expectations.

We have a very big baby business in Europe that's performing well. We have a good cleaning business in Europe that's doing very well. Both are consumer staples, so they tend to be more market-share opportunities for us, and people tend to keep buying those products no matter the economy.

IBD: That baby products business is part of the recent acquisition

Lillie: It's the Nuk business that came out of the acquisition of Mapa Spontex in April 2010. We've been focusing a lot of investment dollars behind growing the baby business across the world.

IBD: Are there more acquisition opportunities out there? Are there other deals in the pipeline

Franklin: I'm sitting at my desk and it's about a foot-and-a-half high in different banker books and presentations on various businesses. But we're very, very selective. We're not really looking for new platforms. We're looking for add-ons to our existing portfolio , whether it be for geographies or product types and things that would make our existing businesses stronger.

Lillie: Because we don't need to do deals to make our numbers, we're more than happy to be patient.

IBD: You said last quarter commod ity costs were stabilizing. Is that still the view as you look across 2013

Lillie: We're looking for moderate inflation in commodities, but nothing egregious.

Franklin: We've managed to grow gross margins consistently over the last five years in what has been one of the most aggressive commodity inflation environments in recent times. But it's certainly preferential for us to have steady commodities.

IBD: And are you on your 3%-5% organic growth target

Lillie: We'll be on the low side of that (for 2012), primarily driven by the lack of snow heading into the year — not a surprise for any of our investors. It was probably a $50 million or $60 million negative.

But that is kind of the fleet average if you look out over any five-year period of time. One year we'll be 6%, another year we'll be 3.

Franklin: We make seasonal staples. We're more vulnerable to the weather than to the economy.

Lillie: You can have a great economy and bad snow, and you're not going to sell any more skis. But you can have a bad economy and great snow, and you'll do very well .

IBD: So what is favorable weather for you? Seasonal weather

Lillie: Traditional weather patterns within a given season are what we're looking for.

The fishing business actually did very well for us in 2012 and actually counterbalanced the lack of snow last January, February and March.

So the Street was expecting negative growth for us in Q1 (2012), but we ended up being up 3%.

Franklin: We call that natural hedges.

IBD: We haven't seen much snow again this year. Is this turning into a long-term challenge

Lillie: If you look back, every five or six years you tend to have a bad winter, and you just need to factor that into your business operation. There's a lot of very good snow in Japan, very good snow in Europe now, incredible snow out West.

As a person who skis a lot — I have a place in Vermont — I don't make a lot of plans around skiing at Christmas in any given year.

IBD: Wal-Mart (WMT) accounts for about 20% of your sales. That retailer's sales are growing, but slower than analysts expect. Does that create issues for you

Lillie: I think Wal-Mart is doing fine. If you look at the actual results, our categories are performing very well for them. Sporting goods, small kitchen electrics are doing well. They've struggled with apparel, with food, with electronics.

In our conversations with them, they're very happy with our performance.

Franklin: The reason we're so successful in places like Wal-Mart is because we invest in the best systems for on-time deliveries, great logistics. Our scale provides us with the most efficient platform.

So we're able to deliver Wal-Mart innovative goods in which there's been an above-the-sector-level of investment, at a price point that they want to hit.

Lillie: We operate well with a large retailer like Wal-Mart, but 80% of our business is not with big guys. So we cater well to the small mom-and-pop sporting goods store or retail outlet and bring them a lot of sophistication and support that maybe they're not getting from our competition.

IBD: What are some of the categories you've invested in that you expect to pay off in 2013

Lillie: We have categories that we call targeted growth initiatives that are looking to outperform that typical 3%-5% growth. Marmot apparel is one that we've talked about a lot, recently.

Pet grooming products is another. A No. 1-performing SKU over the Black Friday period was a countertop appliance for making dog treats.

We've got a lot of initiatives in Japan with baseball products. We see growth in fishing in Asia and Latin America as well as in the States. So there's a lot of opportunities there.

IBD: The Mr. Coffee single-serve brewer has been successful. Have you felt increased competition from Starbucks (SBUX) as it rolls out its own single-serve brewers, or others

Lillie: What we've seen over the last few years is we have increased in market share. We're now the No. 2 single-serve coffee maker behind the Keurig machine itself. But we've also seen our market share increase in the automatic drip category as less-well-positioned competitors have been challenged with the advent of the single-serve machines.

And if you look at the Starbucks machine, it's at really an entirely different price point. It's a nice-looking machine, but I wouldn't say we directly compete against that.

IBD: Jarden is big and broad. What are the challenges you have when explaining your story to investors

Franklin: I really don't think it's that hard for us to tell the story anymore. It was.

For a long time, people said, "Are you a roll-up?" But today, people really understand how the three consumer divisions work, how they work together, why they create more efficient platforms for the market and all those things.

It's really not hard to tell the story anymore. But we have 120 brands. There's a lot to talk about and to get their hands around.

Lillie: You had a lot of people look at Jarden heading into 2008. You saw this concern about consumer stocks, and who was going to survive and who was going to do well.

Jarden was relatively young, and there wasn't a huge track record of how it was going to perform in a choppy economic environment. And what they saw during 2008, 2009, 2010 is a company that outperformed its competition.

Franklin: Jarden is where Clorox (CLX) was 15, 20 years ago. We've got some very powerful brands that are just beginning to meet their stride.

--

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