Fishing for income? Try this consumer stock

Consumer goods stock High Liner Foods reported disappointing results in the first quarter. But its earnings per share are expected to grow quickly this year and next. The company also pays decent dividends that rise each year. It remains a buy for gains and rising dividends.

The shares of consumer goods stock, Lunenburg, Nova Scotia-based High Liner Foods, North America’s top value-added frozen seafood company, have slipped recently. But this slip gives you an attractive buying opportunity.

For one thing, High Liner’s earnings per share are expected to grow quickly this year and next. Based on these earnings estimates, the shares are cheap. For another thing, it’s a ‘dividend aristocrat’. In Canada, these are companies that have raised their dividends for at least five years in a row. High Liner has raised its dividend longer than that. Today’s dividend of 48 Canadian cents a share yields a decent 2.2 per cent. This should attract income-starved investors who will bid up the price of your shares. As a result, High Liner remains a consumer stock to buy for long-term share price gains as well as decent and rising dividends.

In the 13 weeks to April 4, High Liner earned $15.6 million, or 50 cents a share, excluding one-time items in both periods. This was up by 13.6 per cent from $13.8 million, or 44 cents a share, a year earlier.

Chief executive officer (now board chairman) Henry Demone said, “Our latest acquisition, Atlantic Trading [acquired on Oct. 7, 2014] bolstered sales and partially offset the impact of volume declines in other areas of our business.”

All the same, sales of seafood should rise in the years ahead. Seafood provides lots of protein and what’s known as ‘good’ fat. In addition, seafood is a staple of oriental diets. The growth of oriental populations in North America suggests that demand for High Liner’s seafood will continue to grow.

The lower loonie held back High Liner

A second factor hurting this consumer goods stock’s results was a drop in the loonie. Earnings in Canada turned into fewer U.S. dollars—the company’s reporting currency. Also, the lower loonie raised the cost of raw materials, which are mostly priced in U.S. dollars. Canada accounts for 22 per cent of High Liner’s sales and nearly 21 per cent of its underlying earnings.

The lower loonie also hurt High Liner’s reported sales. Its sales in loonies rose by 5.4 per cent, to $327 million. But its reported sales rose by a significantly lower 2.5 per cent, to $310 million. The sales volume declined by five per cent, to 89.5 million pounds.

High Liner is undertaking initiatives to improve its operations. One is to stop production at its leased facility in Malden, Massachusetts. The company will transfer this production to its other facilities. It expects this to cut its operating costs by $3 million a year. With the initiative implemented in early April, High Liner should save $2.25 million or so in 2015.

Mr. Demone said, “Our strategic goal to optimize our supply chain continues to be a top priority for the organization and while delays were experienced in the first quarter in certain areas, our overall expectation to achieve $20 to $25 million in annual cost savings related to this goal has not changed.”

High Liner aims to cut costs and raise sales

High Liner also plans to raise its sales. Mr. Demone said “we…believe that focusing efforts on the development of innovative product offerings is key to driving organic growth across our business.”

In 2015, High Liner is expected to earn $1.79 a share. This would be solid earnings growth of 16.2 per cent from last year’s earnings of $1.54 a share. Next year, its earnings are expected to grow by over fifth, to $2.15 a share. Convert this year’s expected earnings into loonies and you get a fine price-to-earnings, or P/E, ratio of 9.9 times. This seems attractive for a company with fast earnings per share growth. Convert next year’s estimate into loonies and it trades at an even better P/E ratio of 8.2 times.

Consumer goods stock to buy

High Liner Foods Inc. (TSX─HLF) remains a buy for long-term share price gains as well as decent dividends that increase each year.

 

The Investment Reporter, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846

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