Winpak lacks dividend consistency ……

Winpak is a leading packaging company, engaging in producing and distributing high-quality packaging materials and packaging machines. The company has twelve manufacturing facilities in North America and its products are used in food, beverages, pharmaceuticals, medical, and personal care industries.

Winpak operates principally in the United States (~80% of 2020 revenues), Canada (~13%), and Mexico and other (~7%). The company’s three main streams of packaging are Flexible Packaging (53% of 2020 revenues); Rigid Packaging & Lidding (~43%) and Packaging Machinery (~4%) which are also its operating segments.

Packaging products for perishable foods and beverages accounted for more than 90% of sales in the last two years. Winpak’s customers include companies of all sizes. It is a sister concern of Wipak, a leading European manufacturer of packaging materials.

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Investment Data

Revenue Growth & Market Exposure

Winpak started with a single unit back in 1977 but has grown manifold both organically and through strategic acquisitions. The company is making good progress on the upstream integration of the recently acquired Control Group using Winpak Heat Seal-produced base materials. Winpak and Wipak will also come together in 2021, introducing a global healthcare commercial and technical organization, Wiicare. The company is pursuing other new healthcare opportunities.

Today, eco-friendly packaging is the need of the hour and continues to be the main driver in many markets. Winpak is also undertaking large capital outlays for the expansion of production lines and upgrading existing co-extrusion lines to enable cost-competitive production of environment-friendly structures.

These investments are expected to ramp up in 2021. The company is also focusing on recycle-ready containers in flexible packaging and the introduction of PCR content or materials from renewable sources.

Food service industry was immediately affected by the pandemic leading to a slump in the company’s sales in the last year. Select rigid container and flexible packaging applications still remain affected to date. Grocery retail items gained volume due to in-home consumption and the raw material input prices declined during the first half of the year.

Despite the pandemic, Winpak’s flexible packaging volumes grew in 2020. The company said that sales volumes were marginally affected by the pandemic. FY 2021 is witnessing volume and revenue growth when compared to the last year. The company’s revenues have grown at more than 6% CAGR over the last decade.

Dividends

Winpak has a modest yield of 0.30% and a dividend payout ratio of only 6%. The company paid $5.8 million in dividends to its shareholders. It is paying a regular quarterly dividend of $0.03 CAD per share.

The last dividend increase of 9% occurred in 2014. The company also declared special dividends in 2015 and 2014 of $1.50 and $1.00 CAD per share respectively. Winpak’s earnings per share have grown at more than 9% CAGR over the last decade.

Capital spending for the year is estimated to be higher than the 2020 level and is forecast to be in the range of $60 to $70 million. Over the past decade, Winpak’s CapEx has averaged more than 7% of revenue. The company’s expansion plans are expected to support the new biaxially oriented polyamide (BOPA) line. Winpak is also expanding its product portfolio with the installation of the infrastructure and production equipment to enter the injection-molded container and in-mold label market (at the Sauk Village). 

Winpak is classified as an essential supplier of packaging materials and machinery for customers in the food, beverage, and healthcare industries. Over 90% of its sales are to food and healthcare markets, resistant to economic downturns. As such, it witnesses a consistent strong generation of cash flow from operations.

The company’s acquisition of the Control Group will help strengthen its foothold in the healthcare printing service model and develop a broad medical representation of the WIPAK and Winpak’s product portfolio. The acquisition was funded from cash on hand.

Winpak’s strategic alliance with Wipak further grants access to packaging expertise worldwide and offers a broad range of products and packaging solutions globally.

Competition

CCL Industries also Intertape Polymer also operate in the North American Packaging & containers industry. CCL Industries is the clear leader given its huge scale of operations and global reach while Intertape Polymer is a leading developer and marketer of packaging and protective solutions for industrial and retail use. IPL Plastics, Richards Packaging are other big competitors. Winpak’s manufacturing costs are affected by the price of raw materials.

Bottom Line

Sales activity has shown signs of rebound starting 2021 for food service and restaurant industries and in the retail food industries, volumes have benefitted from the shift to greater at-home meal consumption. Winpak is directing future investments towards expanding existing and new technology capabilities in extrusion and converting.

As a leading player, Winpak has developed the required expertise for the development of innovative and quality materials, and low-cost manufacturing. It should continue to benefit from increasing consumerism and growing awareness around sustainable packaging.