Multi-Color Corporation (LABL): A World Full of Labels

Shoppers need to buy household products in every country. Toothpaste, laundry detergent, shampoo, and other consumables also have buyers even when the economy’s weak. Investors know the companies that sell these products, and follow their expansion into foreign markets. Consumer products makers aren’t the only companies that benefit when shoppers buy household items, though. A bar of soap or a container of detergent needs a label, which could mean a sale for label maker Multi-Color Corporation (NASDAQ:LABL).

Customers

Multi-Color Corp’s located in Cincinnati, Ohio, which helps explain the demand for its labels. Cincinnati’s also the home of consumer goods manufacturer The Procter & Gamble Company (NYSE:PG). Procter & Gamble remains an important customer of Multi-Color Corporation (NASDAQ:LABL), but the label maker has become less dependent on the consumer goods giant in recent years. Sales to Procter & Gamble provided 33% of Multi-Color’s revenue in fiscal 2008, and 14% of revenue in fiscal 2012. Sales to Miller Energy Resources Inc (NYSE:MILL) provided 18% of Multi-Color’s revenue in fiscal 2008, and 4% of revenue in fiscal 2012. Multi-Color greatly expanded its customer base when it bought the Australian label maker Collotype back in 2008.

Multi-Color Corporation (NASDAQ:LABL) also sells its labels to many other major consumer products manufacturers, including Procter & Gamble’s competitor Colgate-Palmolive Company (NYSE:CL). This case study shows that Colgate-Palmolive uses Multi-Color’s labels to attract Latin American shoppers. Multi-Color may collect more revenue from Procter & Gamble than it collects from Colgate-Palmolive simply because Procter & Gamble’s a bigger company. Colgate-Palmolive has $17.2 billion in revenue while Procter & Gamble has $83.7 billion in revenue, so Procter & Gamble probably needs to buy more labels.

International presence

The Collotype acquisition opened up international markets for this label maker. Multi-Color Corporation (NASDAQ:LABL) gained label making operations in Australia and South Africa with the purchase. The label maker followed up with acquisitions that increased its reach on other continents. Multi-Color bought European label makers Guidotti CentroStampa and Monroe Etiquette in 2010. In 2011, Multi-Color bought La Cromografica, York Label Group, and Warszawski Dom Handlowy. The label maker also made an acquisition in Chile and an acquisition in Argentina during the year.

Packaged goods need labels, but there’s a limit on how much a product like laundry detergent or hand soap can fetch at the supermarket. To achieve higher margins on labels, Multi-Color Corporation (NASDAQ:LABL) needed to get its labels on more valuable products. Wine and spirits offered compelling opportunities. Quality alcoholic beverages can fetch high prices with the right presentation. A label might be the only piece of information a shopper sees while considering an expensive bottle of wine, so a company that can make impressive wine labels has a great sales pitch. Multi-Color’s operating margin increased from 8.3% in fiscal 2008 to 10.7% in fiscal 2013.

Valuation

Multi-Color Corporation (NASDAQ:LABL) may be a better deal right now than the consumer products giants that buy its labels. The label maker has a forward P/E of 13. Procter & Gamble has a forward P/E of 18, while Colgate-Palmolive has a forward P/E of 19. Multi-Color’s 1.03 PEG ratio also comes out lower than Procter & Gamble’s 2.57 PEG ratio and Colgate-Palmolive’s 2.30 PEG ratio, using the statistics at Yahoo! Finance. The label maker does have a lower forward yield at 0.7% than Colgate-Palmolive at 2.2% and Procter & Gamble at 3%, though. Multi-Color offers an opportunity to trade dividends for growth while staying in the defensive consumer products business.