Consumer Packaging, Inc. is Canada'...

Consumer Packaging, Inc. is Canada's largest manufacturer of glass containers. Operating seven plants across Canada (which are located to service the two the Canadian and major U markets), Consumer is a replete line supplier of glass containers used for commonss juices, other beverages, and pharmaceuticals.

In Consumer case, the income and fully diluted EPS information contained in the accompanying Stock Selection Guide provide an unusual sprouting picture for a "Stock to Study" article. However, as with all companies, it is frequently more important to understand the factors that caused the eventuates than the results themselves. This is especially tint if one wants to make a more total judgement about future prospects.

When studying companies believed to be in a turnaround situation, it is useful to examine novel quarterly data. This enables you to blemish any improving trend in earnings that should be evident if the company is indeed "turning around."

Revenues

The annual compose rate of growth in incomes during the 1985-1994 study period was approximately 3% This gradual average rate of growth reflects: (1) the maturity of the packaging industry in Canada; (2) a vigorous increase in revenues in 1989 fit to an acquisition and a significant decrease in 1993 suitable to a divestiture; and, (3) the Canadian dollar's nerve in 1990 which reduced the company's competitive capability in the U -- an area Consumer had bounded would provide growth.

EPS

During the 10-year reflection period, Consumers experienced six consecutive years of losse (1988-1993)in fully-diluted earnings through share before unusual items (EPS) During this period, factors affecting corporate outcomes included: (1) an initial restructuring in 1988; (2) an acquisition in 1989 that added a significant flush of debt to the balance sheet just when interest rates were rising; (3) the recession that began in 1990; and, (4) the at liberty trade agreement which stipulated a reduction in trade barriers for the Canadian packaging industry -- an industry that was already not competitive with larger scale operators in the US

Despite many years of negative EP newly come quarterly results do appear to indicate a significantly improving tend (see Table 1).(Table 1 omitted) Analysts estimate that the company will report positive earnings for fiscal 1994

JUDGING subsequent time GROWTH

Improved results are the proceed of several developments including: a novel majority owner; and a major restructuring of the company's operations and financing. As well, because of accumulated losse the company is unlikely to pay cash taxes for several years.

New Ownership

In 1993 Consumers' major shareowner changed from Consolidated Enfield Corp. to the U based G&G Investments Inc. This recent shareowner has considerable experience in the U glass packaging industry which will enhance Consumer opportunities to obtain contracts with other U companies.

Efficiency of Operations

Part 2(1) of the Guide indicates that Consumers' operating profit margin (OPM) (see pages 26-27 of the Stock Selection Manual) averaged les than 4% during the ten-year consideration period. The trend showed a steady decline until 1991 and a gradual improvement to the now passing estimated level for 1994 of 11% Quarterly data indicate a markedly improving trend from one side of to the other the last few quarters (see Table 1)

Effectiveness of Operations

Return in succession Common Equity (ROCE), as discussed in Part 2(2) of the Guide, cogitates management's ability to earn an adequate rate of answer on shareowners' money (see pages 27-29 of the Stock Selection Manual). As with earnings, ROCE experienced six consecutive years of negative be the effects ROCE in 1994 is count uponed to be positive for the first time in new years.

Debt Financing

ROCE is affected by way of a company's reliance on due to finance its operations and acquisitions. Part 2(3) of the Guide indicates that Consumers's shortcoming ratio (see pages 29-30 of the Stock Selection Manual) has been in exces of 65% since 1988 In fact, the fault level was high enough that the company was unable to fitting its debt obligations for an augmented period of time. A due restructuring approved in September 1994 has allowed the firm to operate with a more manageable flush of debt service. However, a significant proportion of Consumer's rife debt was obtained with a floating interest rate and therefore, interest charges remains sensitive to rate changes.

STUDY POTENTIAL: THE "BUY" & "SELL" ZONES

Two plants of illustrative judgements about Consumers' bourgeoning prospects during the next five years -- and the market's possible valuation of them -- are cogitateed in the accompanying Guide.

The A Judgements

The Guide's chart illustrates rewards growing at the A discernment rate of 10% to $696 million from 1999. EPS were grown at an average annual rate of 10% -- from the 1995 EP estimate of $140 -- to $205 by the agency of 1999.

The 1995 EPS estimate of $140 together with the late Price of $10.25 produce a instant Price Earnings ratio (P/ E) of 73X (see small room 8 in Part 3 of the Guide).

The 1999 EP projection of $205 and a high P/E ratio of 120X originate an Estimated High Price from 1999 of $24.60 (see Part 4A). This Price along with a provision for a 25% decline in the stock's price from the common level (see the Selected subdued Price in Part 4B) defines a bribe Zone of $7.69 - $1333 (see Part 4C)