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National Presto (NPK) was founded in 1905 to design and produce pressure canners, called “canner retorts,” for commercial canneries. The Wisconsin-based business took off a few years later when the United States Department of Agriculture deemed pressure canning to be the only acceptable technique for storing certain types of food without the risk of food poising. Today, with more than a century of history, the North American industrial manufacturer operates in three distinct segments.

BUSINESS

In order to take full advantage of its technical expertise, the company began developing products that were meant for everyday, in-home usage. It introduced the first saucepan-style pressure cooker in 1939, which quickly gained popularity in American homes. Now, consumers probably know the Presto brand for a multitude of household and electrical appliances. Indeed, the Housewares and Small Appliance business was National Presto’s best performer during the first quarter of 2013. Products include an assortment of pressure cookers and canners, coffeemakers, electric tea kettles, knife sharpeners, and a variety of deep fryers.

Additionally, in March of this year, the company announced that it is coming out with a new set of offerings. We think that the Housewares unit will see improvement after introducing a new pizza oven and a new gourmet popcorn maker. That said, because National Presto mostly sells to large retail stores and not smaller distributors, it’s important to note the status of its relationship with a few clients. Wal-Mart (WMT Free Wal-Mart Stock Report), for example, accounted for 10% of the segment’s revenues in 2012. Losing a customer of this magnitude could drastically alter the bottom line.

The Absorbent Product segment is exposed to the same type of risk. This unit, responsible for manufacturing and selling private label adult incontinence products and diapers to other manufacturers, is the company’s smallest in terms of revenue. We expect it to play an even smaller role moving forward since shipments to its main customer, who is now producing most of its own products, continue to decline.

National Presto’s Defense segment can trace its origins back to the Second World War. Between 1940 and 1945, the company converted almost all of its facilities to war production, assembling aerial bombs and artillery fuses for the military. Now, the Defense segment is run by the AMTEC Corporation, a National Presto subsidiary. It mostly manufactures 40mm ammunition and precision mechanical and electronic products. Recently, management has cited bad timing of ammunition related shipments as the main driver of losses.

Moreover, the Defense business relies heavily on government contracts with the Department of Defense, intelligence agencies, and security branches. We have been concerned for this sector’s performance, considering the nation’s financial state. It is likely that defense contractors will be some of those struggling should the sequestrations continue. However, National Presto recently announced plans to acquire DSE Inc., which will increase the proportion of overall revenue derived from government contracts. Additionally, the move could also help the company pick up larger contracts further down the road.

OUTLOOK

National Presto usually pays shareholders handsomely in the form of a nice annual payout. However, the 2013 dividend, which would have been paid in March, was distributed at the end of the last fiscal year. This tradition will continue in 2014, despite some recent performance issues. We expected a stronger housing market to lift earnings higher than the company has been reporting lately, but profitability should improve during the second half of this year. 

For those interested in learning more about National Presto’s prospects, along with the particular investment merits of the stock, subscribers are encouraged to review our full report in The Value Line Investment Survey.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.