Packing Up?

Shaleen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The last time I went to South Korea I found it very difficult to find a restaurant serving decent vegetarian food (Yes, I am a vegetarian). So I had to fill myself up with whatever was available that suited my palate. I have to go there again, but this time I’m going to carry some packaged food for myself. Some of these could well be packaged by Landec (NASDAQ: LNDC), a material science company that develops and markets innovative and patented products for agricultural, biomedical, and industrial markets.

A Look at Reported Numbers

For Q2 Fiscal 2013, LNDC reported revenue of $114.7 million accounting for a growth of 41% over the same quarter previous year. The net income for Q2 increased from $3.3 million to $8.9 million (including $3.9 million non-recurring earn-out adjustment) when compared to the previous year quarter. EPS for the quarter was up from 13 cents in Q2, 2012 to 34 cents marking a rise of 162%.

The Outlook

LNDC has upped its revenue growth guidance for Fiscal 2013 from approximately 30% to fall in between 33%-38% and a growth of 60% to 70% in net income including the additional $3.9 million or 15 cents per share. Cash flow from operations is expected to be $20 million to $25 million and a CapEx of approximately $8 million to $9 million.

Why This Stock?

A very low debt equity ratio of 0.35 indicates lower financing costs. Moreover it has a low P/E ratio of 15.1 and a high earnings growth estimate of 17.5% by industry analysts. Apio, Landec’s subsidiary, is the leader in U.S. fresh-cut specialty packaged vegetables sold in North America and is expected to drive growth in double digits. This quarter witnessed a $3.9 million increase in export revenue at Apio’s all due to increase in volumes and favorable pricing.

What else can we SEE?

Dow Chemical (NYSE: DOW) manufactures and supplies chemical products used as raw materials in the manufacture of consumer products and services globally. In October it released its Q3 results with revenues going down by 9.7% to $13.6 billion and profits dipping 39% to $497 million, year over year. The return on capital is just 8% which is lower than the industry average of 14% and also for a stock having Beta of 1.9. Dow will also be getting rid of some of its business units generating sales of around $1 billion annually. The restructuring process also includes budget cuts, layoffs, and closure of around 20 plants. The expenses related to these decisions are estimated to be more than a billion dollars. I don’t look at the current quarter very positively though we can see an improvement in margins later in the year.

Sealed Air (NYSE: SEE), the New Jersey based specialty packaging service provider, has new management now which means that there could be some cost-cutting or restructuring as their net margins have continuously been under pressure. Moreover, it has a load of debt on its shoulders (D/E ratio of 2.9) that it has to reduce in order to improve its margins. The acquisition of Diversey was a mistake. The volumes at Diversey were continuously on the fall because of weak European market. The economic conditions in Europe will take some time to stabilize so it is expected that the results for this quarter will be nothing to boast about. At the current market price of $18 the stock just doesn’t seem to be attractive.

Let’s Pick

Landec has been delivering good results over the past few quarters and the stock looks to be in an uptrend. Also strong growth prospects and analysts’ recommendations make it quite attractive. Dow, on the other hand, with its restructuring, budget cuts, and closures might result in improved margins in the next fiscal year. But as of now I am not very confident to create a position in this stock. A company like Sealed Air which makes the popular Bubble Wrap and Cryovac food pouches also fails to attract me, as their decision to buy Diversey at over $4 billion shows poor management. 

shaleenlohia has no position in any stocks mentioned. The Motley Fool owns shares of Sealed Air.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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