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American Pacific Group (APFC) Finds Consistency as it Moves Forward

The old saying that everything has to come from somewhere cannot be more apparent than in the specialty chemicals segment. These chemicals are the basis for just about every product manufactured in the world. If an investor can find a specialty chemicals company that is operating within the right sectors, they will have found a stable and reliable investment that will pay off.

American Pacific Group, a specialty fine chemicals manufacturing and distribution company, works to produce pharmacutical chemicals and chemicals used in the manufacture of rocket booster fuels. The company also operates in the aerospace equipment business and other affiliated and non-affiliated businesses such as water treatment and real estate.

Considering American Pacific Group as a diversified industrial company would be tempting but a mistake. Approximately one-third of the company’s revenue stems from the sale of its specialty chemical products while approximately one-third is derived from its fine chemicals unit. The remainder is aerospace equipment and “other” products. In many ways, this mix of sales is a blessing for the investor as it offers a certain amount of consistency over longer-term contracts associated with the sector. There are also other reasons for this relative stability, such as costs associated with changing vendors, that also make the sector attractive. Unfortunately, there are also downsides to this method of contracting as the commodity aspects of manufacturing the product can change and do not generally follow the same contracting method.

The first three months of 2010 have found the company reporting lower results after a slightly higher return in the last part of 2009. These results were approximately $93 million vs. approximately $102 million for the end of 2009. Generally, these results can be attributed to slightly higher per/pound costs for percolate commodities in the fine chemicals area and timing of orders being place to be counted by customers toward the end of the year. To counter this one particular reporting period, however, one should consider backlogged orders the company has received. These orders are reported separately by the company and represent a sizeable revenue source as they are filled. In this respect, the company anticipates current backlogged orders to be filled by the end of 2010. Past current economic conditions, one cannot ignore American Pacific’s presence within the pharmaceuticals space. It is one of its largest areas and continues to do well. As the company continues a push into Europe and other regions, now may well be the time to take a look.

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