Imperial Sugar squeezed by poor demand and high sugar pricesPosted: August 15, 2011
Last week, Imperial Sugar (IPSU) lost 59% of its value in one day after reporting extremely poor earnings. The stock has continued to sell-off over a week later losing an additional 20%. The reason? IPSU is experiencing the worst of all operating squeezes: higher input costs (sugar) and the inability to raise prices to accommodate those costs. In this case, competitive pressures are to blame.
From the earnings report:
“Our inability to increase prices in the face of higher raw sugar costs because of competitive pressures from domestic and Mexican sources was the principal driver of the quarter’s disappointing results,” commented John Sheptor, president and CEO of Imperial Sugar. “Raw sugar purchased during the quarter was priced largely against the March and May futures contracts, which peaked near $40 per hundredweight prior to the USDA import quota announcement in early April. The subsequent decline in the raw sugar futures market which occurred after the quota announcement was only temporary and the raw market has rallied back to near the same level. Our raw sugar costs in the fourth fiscal quarter should see little relief, while sales prices thus far in the fourth quarter have only improved modestly.”
Higher manufacturing costs also hurt operating results in the previous quarter.