Consumer stock a buy for gains and income

High Liner Foods earned less last year. But this largely reflected the lower loonie and one less week than the year before. This consumer goods stock is expected to earn more this year and next. It remains a buy for long-term share price gains plus high and rising dividends.

We regularly review Lunenburg, Nova Scotia-based High Liner Foods (TSX─HLF). Since we published our November 6 issue, its shares have risen by 16.7 per cent. This value-added frozen seafood company is expected to earn more this year and next. It remains a buy for long-term share price gains plus high and rising dividends.

In the 52 weeks to January 2, High Liner earned adjusted net income of $35.6 million, or $1.14 a share (all numbers in U.S. dollars unless otherwise noted). This was down by 8.1 per cent from an adjusted $38.8 million, or $1.24 a share, the year before.

The foreign exchange impact chopped High Liner’s reported sales by $72.3 million. The year before, the foreign exchange impact reduced its sales by a more modest $31.9 million. Also, the company benefited from an extra reporting week in 2014.

High Liner’s earnings per share declined less than total earnings. That’s because its share buybacks trimmed the weighted diluted average number of shares to 31,265,000. The repurchases more than offset shares issued under stock option plans.

Plant closure will cut operating costs

President and chief executive officer Keith Decker said, “As expected, we only started to realize the benefit of raw material cost savings towards the end of the fourth quarter of 2015 and therefore, previous raw material cost increases, along with the weaker Canadian dollar, continued to have a negative impact on year-over-year financial performance.”

Mr. Decker is optimistic about High Liner’s outlook. He said: “We are pleased that the fourth quarter’s results reflect operational improvements, including increased benefit from supply chain optimization activities.” High Liner is closing its New Bedford manufacturing facility to deal with overcapacity. Shifting that plant’s production to three other facilities will cut its operating costs by $7 million. The company is taking one-time charges.

Mr. Decker concluded that: “In 2016, our primary focus will continue to be on increasing sales volume and managing costs to improve earnings.” This is expected to raise High Liner’s earnings.

In 2016, High Liner is expected to earn $1.70 a share. That would represent earnings per share growth of 11.8 per cent from earnings of $1.52 a share last year, after excluding some items. This works out to C$2.22 a share. Based on this estimate, High Liner trades at an appealingly-low forward price-to-earnings, or P/E, ratio of only 6.9 times, which makes it a bit of a bargain stock.

Next year, as the full benefits take hold, High Liner’s earnings are expected to climb by another 13.5 per cent, to $1.93 a share. That’s C$2.52 a share. Based on this estimate, the shares trade at an even better forward P/E ratio of 6.1 times.

High Liner is what’s known as a ‘dividend aristocrat’. That’s because it has raised its dividend for well over five years in a row. The 2016 dividend rate of 48 Canadian cents a share yields an attractive 3.1 per cent. With the company’s earnings on the upswing, we expect it to continue to raise its dividend every year.

High Liner Foods remains a buy for long-term share price gains as well as attractive and growing dividends.

 

The Investment Reporter, MPL Communications Inc.
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