Greystone Logistics Inc. (GLGI)

[Olmsted]

Vince,

Good sleuthing Vince.

I think that article lowballs the size of the market a bit.

From a whitepaper on the GLGI website:

"Pallets are a six billion dollar annual industry in the U.S." I believe that comes from trade association data.

http://www.greystonelogistics.com/news_record.php?id=4

One thing that jumped out at me was how fragmented the industry is. If Peco is the biggest player, and only has ~6-7% share - Wow! That's a lot of opportunity for consolidation. Greystone's main competitor probably is not Peco, it is the local wood-pallet guy. Operations like Peco and Greystone should be able to over time edge out these smaller, local suppliers. Especially once the virtuous return-to-scale cycles begin to kick in.

I see that Peco mainly offers wood. Hopefully Greystone can make the case for the superior value proposition of their plastic, and start to consolidate at at least the same pace as Peco is.

The article also makes the point that there is a heavy up-front cost for customers, but this partially makes said customers "sticky" because the company would be incentivized to do whatever it takes to keep them.

-vpagano

I read this section of the article as that the up-front cost fell mainly on the suppliers. It is my understanding that Greystone has even more favorable customer dynamics. Greystone will buy back damaged pallets from customers - but only while those customers are active purchasers of their products. This means that there is an embedded value to the pallet inventory that would be lost if the customer switched suppliers, making customers somewhat sticky. For example, in the case of Miller-Coors, this embedded value is approximately $30m. A competitor would have to offer Miller-Coors an incremental $30m in discounts or value to make it worth their while to switch. That gives Greystone a reasonable moat to defend existing customer relationships.

Greystone also makes pallets to large customers' specific specs, RFID, a lot of other logistics chain optimization. More barriers to switching.

Meaning if GLGI were to pick up another large beverage company as a customer it could take possibly take a step up in revenue to another sustainable level, showing the same 25% average growth in sales.

-vpagano

Wouldn't that be nice... I think the key is to watch capex. If they pick up another large customer, one that wants customized pallets tailored to their distribution architecture - we should see some spending on new molds in advance of actual sales. That should be the tip-off.