National Presto (Finally) Opens Its Wallet

If the future of America lies in a simpler, thriftier past, it's worth a trip to National Presto Industries ( NPK - news - people ) in Eau Claire, Wis. Time has frozen here. The steel desks in the converted cinder-block World War II munitions factory that serves as headquarters have not been replaced since Eisenhower was President, the lamps since Lyndon Johnson. This oddball manufacturer of kitchen appliances, bullets and diapers has hoarded cash and government bonds (now 39% of assets), eschewed debt and refused--despite pressure from stock analysts--to chase quarterly earnings.

At the helm: Chief Executive Maryjo Cohen, 57, who joined the company out of law school in 1976. While her rivals have been scrambling to plug holes in working capital, Cohen has been shopping. Two of her well-timed acquisitions during the past decade: a bulletmaker (mere months before the Sept. 11 attacks) and a private-label diaper maker (to cater to aging baby boomers). The mainstay business of cooking gadgets (electric griddles, pressure cookers and deep fryers) hasn't been damaged by the recession, since people cook at home to save money. Crows Cohen: "We're having one of our best years in our 104-year history."

Cohen controls 30% of Presto's stock, worth $188 million, a big reason private equity groups have yet to descend. But for all her wealth, Cohen lives with her mom in the three-bedroom, poured concrete home in Eau Claire where she grew up. She flies coach, stays at Holiday Inns, borrows from the library (she secured Dan Brown's The Lost Symbol ahead of 471 readers on the waiting list) and has yet to upgrade from dial-up Internet service for her home computer. Productivity software for the one at her unkempt, cheaply paneled offices: Microsoft ( MSFT - news - people ) Office 97. "If you're busy fixing up your offices, you're not running your business," says Cohen. The drab surroundings, she adds, score points with penny-pinching buyers from Wal-Mart ( WMT - news - people ) and Sears: "They know we're not paying a lot for overhead."

Investors, too, have grown to love the parsimony and the steady dividend history (unbroken in 65 years). After a long stretch in the doldrums, Presto's shares turned a corner a year ago; over the last decade the stock's total return has averaged 14.4% a year, to the market's --0.2%. Last year Presto cleared $63 million before interest income and taxes on $448 million in product sales.

Presto started life in 1905 as Northwestern Steel & Iron Works, maker of 50-gallon commercial canners. Ten years later it moved into home canning and in 1939 introduced the first saucepan-style pressure cookers. World War II rationing of aluminum had it cranking out munitions. In 1944 Maryjo's dad, Melvin S. Cohen, joined as a customer service manager; two years later he married the daughter of a large shareholder and soon shot up the ranks.

In 1960 Melvin became president just as conglomerators like Harold Geneen and James Ling were gaining admiration. He scooped up nine companies, including a door-to-door vitamin seller, a pipeline operator, a press-and-lathe refurbisher and a trucking business. Melvin's appetite was matched by his eye for bargains. He earned praise from Benjamin Graham, who touted Presto in his value-investing bible, The Intelligent Investor.

When leveraged-buyout firms started bidding prices up in 1980s, Melvin put away his wallet and started selling. By the time Maryjo took the corner office in 1993 he had unloaded everything but the kitchen appliance business. By 1999, with the world awash in cheap money, Presto's cash and securities came to 80% of its assets. The stock was as flat as a pancake on a Presto Tilt 'n Drain Big Griddle.

Then things got ugly. A study by the New York Society of Security Analysts in 1999 blasted Presto for inept management. FORBES called the Cohen family rule a "farce." Melvin took out an ad in Inventor's Digest requesting ideas for new products into which he could pour some cash--565 came back, all rejected. In 2002 the Securities & Exchange Commission demanded that Presto register as a mutual fund company. When Melvin refused, the agency sued in federal court for violation of the Investment Company Act and won (though it lost on appeal).

Shareholders' salvation: two stock market crashes and a menu of suddenly cheap assets that could balance out Presto's kitchen appliance unit, which not surprisingly had to send production work abroad in order to stay competitive. After exiting the munitions business in 1992, Presto got back into it in early 2001 with the $5.6 million purchase of Amtec, maker of 40mm bullets for mk19 machines guns now used in Iraq and Afghanistan.

Shortly thereafter RMED International, a baby-diaper maker leasing space from Presto, went up for sale. Three reasons to buy: Diapers are too bulky to ship cheaply from abroad; U.S. factories are close to the pulp (from southern yellow pine growing in Georgia and Washington state); and expansion into diapers for nursing home patients seemed demographically timely. Price: $7.3 million. "We had the cash, and we could move fast," says Maryjo, who took over as chairman in 2002. Melvin died last year at 90.

The old guy was right about one thing: Buyers tend to overpay and overleverage. Since 1980 Presto's five biggest kitchen rivals have been sold a combined 18 times, often landing in bankruptcy or liquidation. During the recent credit crunch some overburdened outfits couldn't borrow to pay their suppliers; Presto delivered without a hitch. Wal-Mart now offers only one brand of electric griddle--Presto's--in its stores, down from three two years ago.

Presto's pristine balance sheet has allowed it to expand its diaper business into disposable adult underwear and to add equipment. A new, 50-yard-long automated fabricator (cost: $10 million) hums next to Presto's headquarters. Five-foot rolls of white cardboardlike pulp are sprayed with water, pulverized, mixed with superabsorbent plastic pellets, vacuumed and spit out the other end in diaper form, at 250 per minute. Most competitors make do with older machines at one-third the output. "At other places it took a year or so" to buy equipment, says Ricardo Borrero, Presto's president of diaper operations, who has worked at three rivals in the last 17 years. "Here, I receive approval in two weeks."

Cohen's appliance business now accounts for only a third of Presto's overall sales, down from 93% a decade ago. Not that she's resting on old standbys. Last year Presto unveiled the $90 Quick Cool ProFry, a nine-cup deep fryer with an internal fan to cool the cooking oil for faster cleanups. The $15 PopLite makes 18 cups of air-popped popcorn in two and a half minutes. It pays for itself pretty quickly, too, allowing two dollars' worth of loose popcorn kernels to substitute for $10 worth of microwave popcorn bags.

New product lines in Cohen's crosshairs include vacuum cleaners, exercise equipment, gardening tools, outdoor grills and pet products. "Everyone has ended up bankrupt or sold," she says. "But we're ready to rock 'n' roll."