Levels for Land O' Lakes' bank debt has fallen 10 points since the company released its quarterly earnings report, triggering some jitters among investors. "Investors are spooked by their latest release," said one dealer. Before the results came out on July 26, the company's bank debt was sitting pretty, clocking in above par. Since then, levels have fallen for three weeks and were recorded in the 90-93 context when LMW went to press, according to LoanX. No trades could be determined.
Due to its co-operative nature, the company has a complex structure that makes digesting its numbers difficult and investors uneasy. "They have unconsolidated entities and a lot of cash and non-cash restructuring charges," said a market source. "It makes it hard to understand their numbers and how they came up with them."
Currently, the company is facing challenges in its upper Midwest dairy manufacturing operations, the impact of unseasonably warm weather on the company's livestock feed volumes and sluggish swine and egg markets. Consequently, profit margins are very thin at roughly 3% and earnings for the year were down from $57.2 million to $47.3 million. In addition, unlike other private companies, Land O' Lakes pays significant amount to its co-op members. Year-to-date, $37 million of dividends have been paid. "It's a lot of cash out the door," said the market source. "I think that there are vastly more moving pieces in this company then anyone previously imagined."
Dan Knutson, Land O'Lakes cfo, hosted an investor call last Wednesday to try and clarify the company's performance in response to follow-up calls received after its second quarter earnings call.