Marine Harvest Declares Another Special Dividend
Marine Harvest has proven once again that you can squeeze gold from a salmon. On Feb. 5 the Norway-based fish-farming operation, and popular member of the Global Income Edge Aggressive Portfolio, announced a dividend of about 16 cents per share, which gives it a 10.3% yield for the past year.
This special dividend, which is a repayment of paid-in capital, goes to shareholders of record on Feb 19.
Marine Harvest (NYSE: MHG) also reported earnings before interest and taxes of $135.4 million for 2014’s fourth quarter, roughly flat with the corresponding period last year but ahead of analysts’ estimates. Operational revenues—those coming from everyday operations—rose 1.8% to a record high $900 million.
Total volume of fish harvested during the quarter was up slightly from the same period last year. For full-year 2014, the company harvested 419,000 tons of fish—enough for 3.3 billion McDonald’s Fillet-O-Fish sandwiches (though McDonald’s reportedly uses pollock, not salmon.)
The company’s profits came in ahead of analysts’ estimates despite Russia’s trade ban on Norwegian salmon and a disruption of its production in Scotland due to biological issues.
In the announcement the company also gave guidance for 2015. It expects demand in Asia and Europe to continue growing. Europe remains the company’s largest market where it generated about 73% of its revenues in the fourth quarter, compared to 68% in the same quarter the previous year.
Although its sales to Russia have fallen, they only represented about 6% of the company’s revenues before the ban. Management said it isn’t worried as other markets will pick up the slack.
Lowered Expectations
Biological problems for the company’s salmon farming operations in Scotland are an issue. Production is being hampered by sea lice, algae, amoebic gill disease and other biological problems. In the fourth quarter, the production there fell 45.6%. And the company expects its first-quarter production in Scotland to be worse, or 42% less than 2014’s first quarter. Marine Harvest reduced its total 2015 production guidance in Scotland by 11%.
Falling production in Scotland is hurting profits. In the fourth quarter, Scotland operations lost $2.9 million compared to a profit of $15.7 million in the same period in 2013
Despite its production woes in Scotland, the company expects total harvests to increase by 5% to 440,000 tons in 2015 as its operations in Norway and Chile should expand on their own and also through recent acquisitions in Chile.
Growth in Chile
While the price of Chilean salmon fell 13% during the quarter, the company made up for it with a volume increase of 17.7% in the fourth-quarter. Marine Harvest said its operations in Chile performed well due to good farming practices.
Its recent purchase assets from Acuinova Chile—with the capacity to produce 40,000 tons of salmon a year—and the acquisition of 42.8% of Aquachile, means considerable production growth.
Stock Talk
Grumpy Mike
Nice article…interesting as 25 years ago I used to open-air farm shrimp in Spain but got wiped out when plane spraying malathion on a nearby rice paddy suffered a wind change which produced an over-spray of our operation…which killed our complete stock of 17+/- million.
The chart for MHG shows no appreciable gains…or losses…over the last year. Do you see this as changing or is this company good for income but not appreciation due to ? ?
+ Does MHG farm only salmon ?
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Richard Stavros
Thank you, Mike, for your question.
I’ll take your first last and last first. Marine Harvest (NYSE: MHG) has a share of between 25% and 30% of global salmon, as you know, and additionally the trout market at the same percentages. They also own processing plants for a range of seafood products.
Certainly, Marine Harvest’s experience in Scotland, and your own experience in Spain, reaffirm to me the potential ups and downs of the seafood market, and the need for global diversification and economies of scale. And MHG fits my thesis of industries that are truly becoming global rather than regional, and can balance out potential changes in harvests from one region to the next.
Marine Harvest is in our Aggressive Portfolio, as you know. These stocks on a total return basis should outperform as we continue to see improved global growth or increased growth in any particular region, as the world recovery has been uneven.
But growth is key in our Aggressive Portfolio – whereas the Conservative Portfolio concentrates on industries that are much more insulated from market dynamics for maximum safety. Though its should be noted that many of our Aggressive holdings also take advantage of trends such as pricing power, economies of scale, or are beneficiaries of demographic trends that are Conservative portfolio also takes advantage of.
In terms of Marine Harvest, I do think that as disposable income improves in the U.S. (particularly from the drop in oil prices) and from an improved U.S. economy we’ll see this reflected in the company’s stock price as earnings improve. I do also believe that as more families move into the middle class in developing nations this will also tend to favor increasingly healthier diets such as seafood and benefit the firm’s bottom line.
I hope that was helpful.
All the best –
Richard
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