Flyover Stock: Hawkins (HWKN)
This 86-year-old chemical distributor is the most overlooked and under-covered company we've profiled at Flyover Stocks.
Executive summary
Despite crushing the S&P 500 and Russell 2000 over the last 5, 10, and 20-year periods, Hawkins is woefully underfollowed with just one sell-side analyst.
Chemical distribution is fragmented and in the early stages of consolidation as building new storage facilities and warehouses near population centers has become increasingly difficult and expensive due to regulations and NIMBYism.
Hawkins management is prudently allocating growth capex toward its highest return and highest growth segment.
Kids’ books today are so much more informative than I remember mine being in the ‘80s.
Did you know, for example, that a rainbow is a circle? Or that the Titanic had a fourth funnel on top of the ship that was only used to maintain visual symmetry?
Another of my son’s books was on sewers and water treatment. As described in my Core & Main profile, it’s a system that we really do take for granted.
As recently as the mid-19th century, major cities lacked wastewater sewers and water treatment, which bred cholera and other diseases as populations grew. It’s a modern marvel that we can move wastewater to locations where it can then be treated and safely recirculated back into the environment.
Water also must be treated in industrial, agricultural, commercial, and municipal settings. Well water, as shown below, may not be clean enough to supply livestock without treatment.
Even previously treated water may not fit the needs of all end markets. Municipal swimming pools need chlorine added, for example, and breweries may want to adjust their tap water chemistry to make their beers taste better.
Enter Hawkins. Founded in 1938 by Howard “Curly” Hawkins as a local chemical distribution business in the suburbs of the Twin Cities, the company today serves a wide variety of end-markets (grouped into Industrial, Water, and Health & Nutrition segments) by providing chemical and ingredient distribution, formulation, and manufacturing services.
Despite approaching $1 billion in revenue, Hawkins only has one sell-side analyst, doesn’t hold conference calls, and from what I’ve learned, its ticker isn’t included in the nightly Minneapolis business news reports, pushed out by local heavyweights like Ecolab, 3M, and Target.
In short: a classic Flyover Stock.
One of my favorite indicators of a special company is when there’s a book written about the founder. Whether it’s You Don’t Know Jack…or Jerry about Jack Henry and Jerry Hall (Jack Henry & Associates), From Junk to Gold by Willis Johnson (Copart), or Kitchens, or Sink by Mathew Ingle (Howdens Joinery), there seems to be a positive correlation between books about founders and virtuous corporate cultures.
My theory on this is that these founders typically took a unique approach and (just as importantly) were well liked enough by their employees and other stakeholders to justify selling more than a dozen copies.
Companies founded by these type of leaders often benefit from what I call a “founder’s pedigree” - even if the founder is no longer with the company, their core principles live on in the way the company does the small things.
Published in 1996, Life in a Putty-knife Factory was Curly Hawkins’ autobiography and provides some insights into the company’s culture.
Two quotes stood out to me. The first had to do with Hawkins’ approach to competing on price versus service:
“We have never tried to undercut or low-ball the competition. That seemed then and it still seems today a good way to make a few bucks in the short run, but a bad way to grow a company intended to be around for a while. Judging by the number of distributors that have come and gone in the past fifty years…I’d have to say our service-and-innovation strategy was the better choice.”
And on the company’s approach to communicating with the financial markets:
“We’ve never felt compelled to put on a dog-and-pony show for the financial community. We believed then and we believe today that if the company serves its customers and takes care of business, the stock will take care of itself.”
Not a bad strategy, it seems. The stock has handily outperformed both the S&P 500 and Russell 2000 over most long stretches, including the last 20 years.
Let’s take a closer look into what makes Hawkins a special business.