If the future of America lies
in a simpler, thriftier past, it's worth a trip to
National Presto Industries (
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) in Eau Claire, Wis. Time has frozen here. The steel desks in the
converted cinder-block World War II munitions factory that serves as
headquarters have not been replaced since Eisenhower was President, the
lamps since Lyndon Johnson. This oddball manufacturer of kitchen
appliances, bullets and diapers has hoarded cash and government bonds (now
39% of assets), eschewed debt and refused--despite pressure from stock
analysts--to chase quarterly earnings.
At the helm: Chief Executive
Maryjo Cohen, 57, who joined the company out of law school in 1976. While
her rivals have been scrambling to plug holes in working capital, Cohen
has been shopping. Two of her well-timed acquisitions during the past
decade: a bulletmaker (mere months before the Sept. 11 attacks) and a
private-label diaper maker (to cater to aging baby boomers). The mainstay
business of cooking gadgets (electric griddles, pressure cookers and deep
fryers) hasn't been damaged by the recession, since people cook at home to
save money. Crows Cohen: "We're having one of our best years in our
Cohen controls 30% of Presto's stock, worth $188 million, a big reason
private equity groups have yet to descend. But for all her wealth, Cohen
lives with her mom in the three-bedroom, poured concrete home in Eau
Claire where she grew up. She flies coach, stays at Holiday Inns, borrows
from the library (she secured Dan Brown's The Lost Symbol ahead of
471 readers on the waiting list) and has yet to upgrade from dial-up
Internet service for her home computer. Productivity software for the one
at her unkempt, cheaply paneled offices:
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) Office 97. "If you're busy fixing up your offices, you're not
running your business," says Cohen. The drab surroundings, she adds, score
points with penny-pinching buyers from
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) and Sears: "They know we're not paying a lot for overhead."
Investors, too, have grown
to love the parsimony and the steady dividend history (unbroken in 65
years). After a long stretch in the doldrums, Presto's shares turned a
corner a year ago; over the last decade the stock's total return has
averaged 14.4% a year, to the market's --0.2%. Last year Presto cleared
$63 million before interest income and taxes on $448 million in product
Presto started life in 1905
as Northwestern Steel & Iron Works, maker of 50-gallon commercial canners.
Ten years later it moved into home canning and in 1939 introduced the
first saucepan-style pressure cookers. World War II rationing of aluminum
had it cranking out munitions. In 1944 Maryjo's dad, Melvin S. Cohen,
joined as a customer service manager; two years later he married the
daughter of a large shareholder and soon shot up the ranks.
In 1960 Melvin became
president just as conglomerators like Harold Geneen and James Ling were
gaining admiration. He scooped up nine companies, including a door-to-door
vitamin seller, a pipeline operator, a press-and-lathe refurbisher and a
trucking business. Melvin's appetite was matched by his eye for bargains.
He earned praise from Benjamin Graham, who touted Presto in his
value-investing bible, The Intelligent Investor.
When leveraged-buyout firms
started bidding prices up in 1980s, Melvin put away his wallet and started
selling. By the time Maryjo took the corner office in 1993 he had unloaded
everything but the kitchen appliance business. By 1999, with the world
awash in cheap money, Presto's cash and securities came to 80% of its
assets. The stock was as flat as a pancake on a Presto Tilt 'n Drain Big
Then things got ugly. A
study by the New York Society of Security Analysts in 1999 blasted Presto
for inept management. FORBES called the Cohen family rule a "farce."
Melvin took out an ad in Inventor's Digest requesting ideas for new
products into which he could pour some cash--565 came back, all rejected.
In 2002 the Securities & Exchange Commission demanded that Presto register
as a mutual fund company. When Melvin refused, the agency sued in federal
court for violation of the Investment Company Act and won (though it lost
Shareholders' salvation: two
stock market crashes and a menu of suddenly cheap assets that could
balance out Presto's kitchen appliance unit, which not surprisingly had to
send production work abroad in order to stay competitive. After exiting
the munitions business in 1992, Presto got back into it in early 2001 with
the $5.6 million purchase of Amtec, maker of 40mm bullets for mk19
machines guns now used in Iraq and Afghanistan.
Shortly thereafter RMED
International, a baby-diaper maker leasing space from Presto, went up for
sale. Three reasons to buy: Diapers are too bulky to ship cheaply from
abroad; U.S. factories are close to the pulp (from southern yellow pine
growing in Georgia and Washington state); and expansion into diapers for
nursing home patients seemed demographically timely. Price: $7.3 million.
"We had the cash, and we could move fast," says Maryjo, who took over as
chairman in 2002. Melvin died last year at 90.
The old guy was right about
one thing: Buyers tend to overpay and overleverage. Since 1980 Presto's
five biggest kitchen rivals have been sold a combined 18 times, often
landing in bankruptcy or liquidation. During the recent credit crunch some
overburdened outfits couldn't borrow to pay their suppliers; Presto
delivered without a hitch. Wal-Mart now offers only one brand of electric
griddle--Presto's--in its stores, down from three two years ago.
Presto's pristine balance
sheet has allowed it to expand its diaper business into disposable adult
underwear and to add equipment. A new, 50-yard-long automated fabricator
(cost: $10 million) hums next to Presto's headquarters. Five-foot rolls of
white cardboardlike pulp are sprayed with water, pulverized, mixed with
superabsorbent plastic pellets, vacuumed and spit out the other end in
diaper form, at 250 per minute. Most competitors make do with older
machines at one-third the output. "At other places it took a year or so"
to buy equipment, says Ricardo Borrero, Presto's president of diaper
operations, who has worked at three rivals in the last 17 years. "Here, I
receive approval in two weeks."
Cohen's appliance business
now accounts for only a third of Presto's overall sales, down from 93% a
decade ago. Not that she's resting on old standbys. Last year Presto
unveiled the $90 Quick Cool ProFry, a nine-cup deep fryer with an internal
fan to cool the cooking oil for faster cleanups. The $15 PopLite makes 18
cups of air-popped popcorn in two and a half minutes. It pays for itself
pretty quickly, too, allowing two dollars' worth of loose popcorn kernels
to substitute for $10 worth of microwave popcorn bags.
New product lines in Cohen's
crosshairs include vacuum cleaners, exercise equipment, gardening tools,
outdoor grills and pet products. "Everyone has ended up bankrupt or sold,"
she says. "But we're ready to rock 'n' roll."