Lydall - An Execution Story That Isn't Executing

I thought that Lydall (LDL) offered a little upside back in September if management could make progress on margins, but that progress hasn't come and the shares have lost half of their value. Between a weaker near-term outlook for margins, weakness in autos, and emerging weakness in heavy machinery, not a lot is pointing favorably for the company over the near term, and management really needs to start delivering the long-expected margin improvements.

In September I said, "Betting on a company to get itself together and improve its operating performance always involves risk, and it is entirely fair for readers to question why they should bother unless and until the segment-level margin performance at least stops getting worse." I still believe that is a very relevant consideration with these shares. Although there is definitely a risk in missing out on gains waiting for hard evidence of margin improvement, there's not much value here if that margin improvement doesn't materialize and management hasn't really earned much benefit of the doubt.

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Lydall - An Execution Story That Isn't Executing

Lydall Needs To Complement Good M&A With Better Internal Execution

Well off the beaten path and certainly not a strong performer over the past year, Lydall (LDL) is an interesting name to look it for what the company could be worth if management can improve their internal execution and drive some long-promised margin improvements. Lydall has a good track record with M&A, including the recent acquisition of Interface Performance, but between the challenges of the auto industry, material cost inflation, and execution issues, the company has not been performing up to its capabilities.

Betting on a company to get itself together and improve its operating performance always involves risk, and it is entirely fair for readers to question why they should bother unless and until the segment-level margin performance at least stops getting worse. That said, the valuation would seem to offer some upside based upon what I consider to be fairly conservative assumptions that leave room for upside if and when management delivers better results.

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Lydall Needs To Complement Good M&A With Better Internal Execution