Alliance Grain Traders, Legumex Walker | Companies offer different reasons for success
Two of Canada’s biggest pulse processing firms posted strong sales results for the first quarter of 2013.
Alliance Grain Traders Inc. (AGT) reported revenues of $276.4 million for the three months ended March 31, an increase of 40 percent over the same quarter a year ago.
Legumex Walker Inc. (LWI) had sales of $83 million, up 26 percent from a year ago.
Alliance credited the improved results to the long-awaited return to normalized pulse crop demand.
“I’m encouraged by the fact that demand is coming back,” president Murad Al-Katib told investment analysts.
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Pulse exports from Canada for the quarter were up significantly over the same period a year ago. Pea sales increased 122 percent and lentil shipments were up 76 percent.
It was the same story south of the border where pea exports increased 54 percent and lentils were up 59 percent.
“Production shortfalls projected for India may represent a demand catalyst that we expect may continue through the second half of the year,” Al-Katib said in a news release.
Legumex Walker was more inclined to attribute improved revenues to the company’s aggressive 2012 acquisition and building program, which saw it add three pulse processing companies to the mix and open its newly constructed canola processing plant in Warden, Washington.
“This is the year that we begin to see the financial benefits of that (investment) in special crops, and then in the second half of the year we’ll start to see the benefit from canola,” said president Joel Horn.
Analysts were impressed with Legumex Walker’s $6.4 million earnings before interest, taxes, depreciation and amortization (EBITDA) for the special crops segment of its business.
That was an increase of 62 percent over the company’s EBITDA in the first quarter of 2012. One analyst asked the company how it was able to achieve such impressive margins, especially in what had been the challenging pea and lentil side of the business.
“We try to pick our spots in the market, and that appears to have worked for us in the first quarter,” said chief financial officer David Carefoot.
Cormark Securities Inc. said LWI’s EBITDA from the special crops segment exceeded expectations by a wide margin and gave the company a buy recommendation.
Overall EBITDA for the quarter was $165,000 because of $1.7 million in corporate expenses and $4.5 million in losses from the canola processing segment due to the Warden plant still being in the commissioning phase.
Horn said the Pacific Coast Canola plant is on schedule to be operating at full capacity in the third quarter, perhaps in time for the harvest of the U.S. winter canola crop in June or July.
Analysts wondered why AGT’s trade volumes were up a lot more than its margins.
The company posted EBITDA of $13.6 million, which was 121 percent higher than the first quarter of 2012 but up only nine percent over the previous quarter.
Chief operating officer Gaetan Bourassa said heavy snowfall in the first quarter disrupted the company’s red lentil shipping program. It missed some rail spots and was forced to use alternative transportation to get product to market, which cost an extra $10 per tonne.
Al-Katib said asset use should improve with the expected return to normal pulse demand. The company has set a goal of achieving 67 percent asset use in 2013 and boosting it by three percent per year over the next five years.
AGT is considering converting some of its underused processing capacity in Canada and Turkey into the food ingredient business.
That would complement the company’s new food ingredient plant in Minot, North Dakota, which will produce commercial quantities of pulse proteins, starches and fibres in the second quarter of 2013.
Al-Katib said the new food ingredient segment will stabilize revenues and profits because it is a diversification from the company’s traditional business of selling whole and split pulses into overseas markets.
“I can tell you that a pet food manufacturing company in New Jersey is not affected by the same macroeconomic effect of currency volatility in the rupee in India. We like that,” he said.
Al-Katib stressed that AGT’s balance sheet is the envy of the pulse business because of new credit facilities amounting to $270 million.
“This financing will become a major competitive advantage for AGT in the coming two-year cycle because our competitors are largely globally family (owned), undercapitalized companies that will not have access to a balance sheet like ours,” he said.
Cormark said Legumex Walker’s balance sheet is a concern, but the situation is improving as pulse market fundamentals strengthen and the company gets set to start commercial scale production at its canola plant in the second half of 2013.
