Friday, February 18, 2011

CEO Departs; I'm Adding Shares

News today from Compass Diversified Holdings (CODI).  CEO Joe Massoud is taking a leave of absence.  Press release here:

Compass Diversified Holdings, an owner of leading middle market businesses, announced today that Joe Massoud, its Chief Executive Officer, has requested, and the Board has approved, a leave of absence to focus his attention on an informal regulatory inquiry that Mr. Massoud has received on matters unrelated to CODI.  CODI also announced that its manager, Compass Group Management LLC ("CGM"), has nominated, and that its Board has approved, Alan Offenberg to assume the role of CEO on an interim basis, as well as Mr. Massoud's seat on the Company's Board of Directors.  Commenting on the transition, Mr. Offenberg said, "I am honored to be able to serve CODI's shareholders in this capacity. Joe will continue to be available to us during his leave and we are all very excited about the many opportunities the Company has to build value for our owners."
Mr. Offenberg has been a partner with CGM and its predecessor since 1998. Prior to that, Mr. Offenberg was with Trigen Energy, Creditanstalt Bankverein and GE Capital. Mr. Offenberg is a graduate of Tulane Universityand the Northeastern University Graduate School of Business. Mr. Offenberg is currently a director and chair of American Furniture Manufacturing, Inc. and Liberty Safe and Security Products, Inc.
The stock sold off this morning, and bounced around most of the day.  I took the opportunity to add shares today at $16.52.  Although Massoud is integral to this company, he will still be available to  management.  They have an awesome portfolio of companies, and they are only getting stronger.  I want to hold this company for a long, long time, and when you get opportunities to buy shares at a discount, that's what you hope to do as a value investor.  They report earnings in early March, and I expect strong results.
The market continues to be quite strong, and I'm a bit cautious, but quite optimistic for returns for 2011.  
Disclosure: Long CODI

Monday, February 14, 2011

New Purchase

Dr. Pepper Snapple Group (DPS).  If you've followed the blog in the past, you know that I've had my eye on this one awhile (link to my previous DPS posts).  I've always believed in this industry.  High barriers to entry and this is mostly due to brand recognition and loyalty.  If you look at everyday consumer products, in almost every space, generics are there, and are often seen as viable alternatives.  Why does no one buy the cheap soda?  Whether its just within consumers' perceptions or not, people buy the brand in this industry and almost nothing else.  Now, I'm unlikely to ever buy Coca Cola or Pepsi.  They are huge mature companies.  I like DPS because its still a growing brand.  Through the end of 2010 their plan was to be in every US McDonalds, and the Diet in almost half of their US locations.  We're obviously going to get more info during this Thursday's earnings announcement and conference call.  There are a lot of growth opportunities out there for them, and they appear to be leveraging them well.

Here are some stats on their products: (via last year's CAGNY presentation):

  • 41.3% market share in non-cola soft-drinks.  Think Dr. Pepper, 7Up, Sunkist, Canada Dry, A&W, Crush.
  • Snapple; #1 in premium tea category.
  • #1 in juice. Mott's, Clamato, and Hawaiian Punch. 
  • #1 in alcoholic mixers. Mr and Mrs T, Rose's Cocktail Infusions.
  • #1 in gourmet CSDs. Stewarts and IBC.

By the way, the link to that presentation is a great read if you'd like to get familiar with the company.

They also have the bottling agreements with Coke and Pepsi.  Here's a rundown on their operations .

Potential threats to this investment:

1)Soda Tax- Many states and municipalities are still considering this as a way to generate more revenue.  This has been in play for awhile, and I'm guessing it will come up further in the future, but they can pass prices along to consumers to some extent.  Its just a matter of how significant the taxes are.

2)Overall Inflation- Think input prices.  Plastics mostly.  This is an issue for almost every business, but a bigger issue for a soft drink company.  Again, its a matter of "how much", as a certain amount can be absorbed without disrupting consumer's buying decisions.

I like the stock at these levels, and depending on what we hear Thursday, or if the market corrects, I'd add to this stock.  I'm a pretty patient investor and have made very few sales in the past 18 months.  I do own many small-cap names, and love to own and watch those.  But lately I've also looked to add some mid to large cap names to a just a little stability to my portfolio, and this will fit.

I bought today at $33.74.

Disclosure: Long DPS