Xerium Technologies, Inc. (NYSE: XRM) is a leading global manufacturer and supplier of consumable products used primarily in the production of containerboard, tissue, consumer packaging, pulp and paper. In addition, the Company also services nonwoven fabric manufacturers, building products producers, and other specialty industrial sectors. The Company’s products, machine clothing and roll covers, are installed on machines and perform critical roles in the manufacturing process by which raw materials are converted into finished products. The Company employs a broad portfolio of patented and proprietary product and manufacturing technologies, as well as extensive industry experience, to provide customers with tailored solutions designed to optimize the performance of their equipment and reduce the costs of their operations. XRM is a global enterprise selling to customers in 63 countries, with 28 manufacturing facilities in 13 countries and approximately 2,950 employees.
XRM’s facilities are strategically located in the major industrial regions around the world. With nearly 58% of world’s containerboard, tissue, consumer packaging, pulp and paper producing machines in the Asia-Pacific region, XRM’s newly built machine clothing plant in China is a game changer for the company. In addition to stabilizing the legacy business operations in North America and Western Europe, the company continues to ramp up new business operations in eCommerce and GDP consumable packaging markets. The Company also employs patented, real-time embedded sensor technology with predictive analytics and simulation software to help its customers optimize machine clothing and rolls operation to improve machine efficiency.
The Company operates with high margins and strong cash flow. It generated $22.8 million in free cash flow and adjusted EBITDA of $95.4 million in FY16. With high barriers to entry in the machine clothing and roll cover market (high capital investment), XRM is expected to continue to yield high gross margins and high operating cash flow going forward. Macquarie Research has a price target of $13 per share.
- XRM generated $22.8 million of free cash flow and $95.4 million in adjusted EBITDA in FY16
- Company opened its first-ever machine clothing plant in China in 2016; opening new business opportunities in the largest market in the world
- Company continuing its repositioning initiatives in 2017; $94 million in new wins in last three years & climbing
- Repositioned growth opportunities in board & packaging, tissue products, pulp markets and shoe press belts
- Machine clothing and roll cover markets offer high barrier to entry
- High startup costs, significant initial capital investment
- Strong barriers yield high gross margins & operating cash flow
- Implemented Six Sigma program at all 28 plants
- Increases operational excellence, quality improvement, lead-time reduction and aimed at waste reduction