AirBoss of America (BOS, TSX)
$6.00 per share | $165 million market cap | 6.7% dividend yield
AirBoss is a world leader in custom rubber compounding products. Their domestic manufacturing capacity (US and Canada) is one of their key strengths. A large portion of AirBoss‘ revenues are from rubber boots, gloves, and personal protective equipment (PPE). These products are of the highest quality and capable of withstanding exposure to chemical and biological weapons.
Very few companies inside of North America are capable of doing what AirBoss does, which makes them unique.
We wouldn’t want to rely on China for all our rubber products and needs, would we?
Early in 2021 the US Department of Health and Department of Defense awarded AirBoss contracts valued up to $600 million. This series of news and largest ever contracts caused BOS to blast from $15 to more than $45.
Now BOS is trading just north of $7 per share, with a dividend yield of 6.7%.
So why’s the stock down 85% and is the 10+ year uptrend still intact?
Inflation has been hitting AirBoss from all sides. Raw material (input) costs have been rising. Even just getting their hands on raw materials has become more challenging. Transportation costs are higher. And some large orders (like the $600 million government order noted) are being fulfilled slower than investors might have expected.
Those factors cause gross margins to be lower than usual (13.4% versus 28% in most recent quarter). In some cases AirBoss has and will be needing to renegotiate contracts which are no longer profitable.
Strong headwinds for sure but strong enough to blow AirBoss away?
I doubt it.
They’re sticking with a quarterly dividend of 10 cents. EBITDA was still positive $10.5 million f0r Q2, on $110 million sales. They have access to approximately $140 million line of credit. Plus they tout a bid pipeline of $1.5 billion, solely from within the “Defense Group”.
“For our AirBoss Defense Group segment, we remain competitively positioned to secure and execute on large-scale sales opportunities, supported by innovative products such as our Blast Gauge System which is focused on ensuring the safety of military personnel and increased military budgets worldwide which are creating opportunities for our traditional defense products like the Husky, Bandolier and CBRN-E equipment,” noted Gren Schoch, Chairman and CEO of AirBoss. “The demand drivers for the products in our ADG portfolio remain strong and our opportunity pipeline across the business continues to sit at record levels.”
Schoch owns about 4.8 million shares, or 18% equity.
Schoch’s holdings are worth $182 million less compared to December.
On November 8 (a huge game day election day stateside) AirBoss will put out Q3 results. This will give an updated glimpse into whether inflationary pressures are hitting them harder or if internal adjustments over the last 6 months are helping.
The corporate presentation is titled “Stronger than Ever”
AirBoss has proven itself capable of weathering economic cycles and coming out better and financially stronger each time.
BOS is a stock I’ve been following for years but never had the luxury of owning, as it’s been a big winner. Now 85% off recent highs the market has provided another opportunity to consider grabbing this growth stock that’s yielding 6.7%.
Managing out of this inflationary spiral we’re in won’t be easy. On a quarter-by-quarter basis it might even become a bit scary (although 85% off an all-time high some or much is already priced-in).
End of the day there’s so few custom rubber manufacturers of AirBoss‘ size and scale. They’re a worldwide leader yet kind of a treasure for being based in North America. Healthcare and defense products are needs, not wants. If the government risks not receiving product because AirBoss can’t manufacture them profitably (sustainably) I think it’s highly likely those contracts will be renegotiated on fair terms.
We can print money. we cannot print rubber boots, gloves, and PPE. Dreadfully, threats from chemical and biological weapons would seem here to stay.
New markets and new products from AirBoss will be geared toward railroads, appliances, and alternative energy.
As of the last call they said they’re hiring, not firing.