Sector financial performance:

This company, who primarily produces canned vegetables for retailers and food services, has been grouped into canned vegetables sector in packaging food industry.

It seems that the demand for canned vegetables have been weak and very sensitive to changes in price in the past several years as indicated by the typical company in this sector that sales volume have continued to decline while accompanying with increase in average selling price caused by increasing costs and product mix’s shifting.

As labor costs and steels costs increased and deleveraging of decreasing volumes, gross margins of companies came down back to a lower level than what they were in 2015, after which  margins had ever gone up as a result of increased price and reduced costs. Our data indicates that the typical gross margin now is about 5% with operating margin of 2%.

According our analysis, companies’ enterprise price/sales ratio is around 0.5.

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Company performance:

It seems that the demand for canned vegetables of this company has been weak as indicated by continued decrease in sales volume. Demand from consumers seems to be still sensitive to changes in price.

For the first half of fiscal 2019 compared with same period of 2018(ended 20180929)

The organic sales (excluding acquisition impacts) of this company decreased about 0.7% primarily due to decrease of 3.3 in sales volume offset by increase of about 2.6% in price/mix.

For fiscal 2018 compared with 2017(ended 20180331)

The organic sales (excluding acquisition impacts) of this company decreased about 3.2% primarily due to decrease of about 7.2% in sales volume offset by increase of about 4% in price/mix (canned vege mainly).

The organic sales (excluding acquisition impacts) of this company increased 3% in the three months ending July 1, 2017 compared with the same period of 2016, primarily due to increase in sales volume of canned vegetables ( increased by 9%) offset by decrease in canned fruits ( decreased by 13%).  Average selling price decreased during this period.

The organic sales (excluding acquisition impacts) of this company decreased 0.4% in fiscal 2017 compared with 2016, primarily due to decrease in sales of canned vegetables (decrease 5.5%) offset by increase in canned fruits ( increased 13%).  During this period, the average selling price decreased but sales volume increased.

The organic sales (excluding acquisition impacts) of this company decreased 1% in fiscal 2016 compared with 2015, primarily due to decrease in sales volume of canned vegetables (decrease about 1.5%) offset by increase in selling price.

While volatile commodity and steel costs, it seems that the price has had direct impact (represents more than half of changes in gross margin) on its gross margins, which went down from 11.5% of 2015 to 8.5% of 2016 as changes in selling price. However, while we have seen increased selling price in 2017/18, the increased costs (commodity and steel costs) continued to cause its gross margin shrink (down to about 5% in 2018). With about SG&A% of 6%, its operating margin down below 0% in 2018.

Stock price

This stock currently has an enterprise price/sales ratio of 0.5 ($33/share), which we think, is relatively overvalued considering the lack of drivers for long term growth for canned vegetables sector.