Take a look at Span-America Medical System’s price chart for the past month. The chart shows a huge fluctuation from $16 up to almost $20 before dropping back almost as rapidly. First quarter results were released on May 3rd. Why such volatility?


The company announced a special dividend of $1.00 to stockholders of record on May 20. In addition to the company’s normal $0.10 quarterly dividend, SPAN paid out a total of $1.10, a tidy 6% return based on an average closing price before the announcement.

This is the 82nd consecutive quarter that SPAN has paid a cash dividend, just over 20 years, and pretty astounding for company with a market cap of $42m. Total payments over that time represent $8.67 per share, over 50% of its current price. Paying such a dividend shows a solid commitment to returning value to shareholders, and is definitely a good sign for the financial health of the business.

Quarterly Analysis

In addition to the dividend news, the company also turned in a pretty solid earnings report despite decreasing sales across the division. Net income for the quarter increased 18% to $1.2m or $0.44 per share, primarily driven by strong cost controls. Both Inventory and Total Liabilities dropped as well, making the balance sheet look even better.

Owner’s Earnings

Based on my calculations, the company has generated approx. $2.6m in owner’s earnings YTD, a 37% increase from the same point last year – not to mention a 13% increase compared to the company’s best year ever for owner’s earnings. As this is a major portion of my valuation analysis, I feel comfortable that SPAN should be valued at the high end of my original estimate.

Other Highlights

“This was our second sequential quarterly increase in industrial sales,” stated Mr. Ferguson. “Second quarter sales rose almost 31% compared with the first quarter of fiscal 2010. Although this business represents a small part of our total sales, it has been a good leading indicator of sales trends due to our broad customer base for industrial products.”

Although sales were down roughly 5% YTD, this is a small sign of encouragement from the CEO. Hopefully these trends will carry over into the other business segments.

“Our outlook for the custom products segment is also positive. In the consumer business, we have finalized plans to supply a line of bedding products to a new, large retail customer beginning around June 2010.”

Although there is no way to tell how large this new retail customer will be, could this be a potential catalyst for improved sales results to finish out the year? The custom products section makes up 28% of total sales, so a significant increase here would have an impact on the bottom line.


Management continues to reward shareholders and showed good judgment during the course of the economic downturn. Even with the most conservative assumptions, I think SPAN is worth north of $20. Based on this report, I’m revising my price target slightly upward, to $27-$30, a significant discount to its current market price.

Read about my original investment thesis for SPAN



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  1. […] This post was mentioned on Twitter by Adam Sues, Ankit Gupta. Ankit Gupta said: RT @asues: new post: $SPAN Q2 results. 82 consecutive quarterly dividends & special dividend. stock still undervalued http://bit.ly/9DHn9z […]

  2. […] Check out my last post on SPAN – Q2 Earnings Recap. […]

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