Tuesday, February 26, 2019

With Another Miss-And-Lower, Multi-Color's Credibility Is In Shreds

Multi-Color (LABL) management’s credibility is pretty much in the same shape as a beer bottle label after a nervous first date, as management once again missed expectations and lowered guidance on ongoing execution shortfalls. While the magnitude of the shortfalls was clearly a surprise relative to sell-side expectations (and mine), the root causes are all too familiar to long-suffering shareholders in this now-poorly-run company.

Management’s announcement that it is pursuing strategic options, including a potential sale of the company, confirms the rumor, but doesn’t really add much of a backstop. I don’t really see a strategic acquisition as all that likely, though a financial buyer (private equity) could perhaps be attracted by the possibility to clear out inefficiencies and low-return lines of business in the hope of cutting costs, boosting margins, and restarting the growth-through-consolidation engine before putting the company back on the public market.

I certainly regret not selling more of my holdings at higher prices, and I’m not going to tell anybody reading that this that they have a good reason to trust this management team to deliver/create value for them as a shareholder. That said, the shares do now look undervalued on what I believe (or perhaps “hope”) should be attainable targets for organic revenue growth and operating efficiency and there could be upside if the company can find a buyer.

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With Another Miss-And-Lower, Multi-Color's Credibility Is In Shreds

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