The story of a business that simply flowered
Richard Hubbard was, as usual, digging around for some likely prospects: thumbing through stacks of prospectuses, analyzing income statements, and crunching out financial ratios. As manager of a $63 million growth fund for the Saveco Corporation of Seattle, that was his job.
What he found was a company, tucked away in a coat-pocket town of the Pacific Northwest - Sandy, Ore. - that has accomplished the equivalent of selling air conditioners to the Eskimos: selling tulip bulbs to the Dutch.
The firm, Melridge Inc., turned better than a 15 percent after-tax profit margin on 1984 revenues. It is a growth company in every sense of the word - ''growth'' in the potential to significantly widen its niche in an expanding market, and ''growth'' in that its business is flowers, hybridized lilies to be exact.
An odd combination of genetic high technology and cottage-industry gardening, Melridge is the world's leading hybridizer of lily bulbs, according to president and principle shareholder George R. Heublein. In its laboratories and greenhouses on the West Coast, the company has narrowed lily-bulb production to a science, producing at will lilies in an Easter parade of colors.
They stand straight up, bend over, or bugle out to the side. The company has 108 varieties of hybrid lily bulbs, 38 of which are already on the market, for sale as bulbs or cut flowers.Another 70 varieties are ready to go - all of them patented. From these bulbs Melridge either grows its own cut flowers for sale to wholesalers and supermarkets, or it sells the bulbs themselves.
Melridge sold about 15 million cut flowers in 1984, up 25 percent from 1983, and about 9 million hybrid lily bulbs in 1984 compared with 7 million the year before.
Ironically, a hefty chunk of Melridge's $8.3 million in 1984 revenues came from selling lily bulbs to the real flower people of the world, the Dutch. Until 1976, when Mr. Heublein bought the company, it pulled in foreign revenues entirely through the sale of bulbs to the Netherlands. That's still the case, but Melridge now charges Dutch growers a licensing fee and royalty for every flower or bulb that the Dutch produce from a Melridge bulb.
These American-engineered lilies have become among the most popular flowers in Europe - where floraculture is worth hundreds of millions of dollars annually. In recent years hybrid lilies have ''grown from the 27th most-popular bulb flowers to the third or fourth - in both quantity and sales,'' says Mr. Heublein, partly because of the color variety and partly because they ship well and have a long shelf life.
The Dutch grow between 300 million and 400 million hybrid lilies a year, and 80 percent of the all hybrid lilies in the world originated in Melridge greenhouses and test tubes. The Dutch turned around and sold some 40 million hybrid bulbs back into US markets in 1984 in direct competition with Melridge. Melridge now prohibits US export of newer bulb varieties.
The company's most recent (12/17) quarterly financial results look better than even the company had projected. Net income was up 92 percent, from $321,000 to $617,000. Revenues popped up 62 percent, from $1.9 million to $3.1 million. The firm's initial stock offering came in 1983 at $5.50 a share. The price is now around $9.50, and the company had a second stock offering in November.
''We bought on both the first and second offerings,'' says Saveco fund manager Hubbard, ''for a total of about 130,000 shares. It's made a very nice profit for us.''
As good as the financials look for Melridge, the item that really caught Mr. Hubbard's eye was market potential. The Department of Agriculture estimates that in 1983 Americans spent $6.3 billion on gardening materials. This year the figure is expected to climb to $8.2 billion, and the USDA puts the number at $13 .2 billion by 1990.
Melridge has positioned itself to occupy an increasing segment of that market with its niche in horticultural supplies and a near corner on hybrid-lily flower , plant, and bulb sales.
Still more impressive than the USDA numbers are some from Mr. Heublein: ''In the US per captia spending on flowers has grown from $8.50 to $12 a year over the last three or four years. In Europe, annual per capita spending on flowers is $50. I'm not saying that people in this country will suddenly spend as much as Europeans do, but the trend is up.
''And if people in the US just double the amount of money they spend on flowers, to $24 a year, there wouldn't be enough flowers grown in the whole world to satisfy the demand.''