RE:RE:RE:Copy of TODAY's NR RSI's weak Q4 results were mainly due to acquisition-related costs and some short-term plant issues. The capex guidance for 2018 was also a bit higher than expected as RSI has to do some environmental upgrades to its beet plant in Alberta. Overall, the outlook is pretty much unchanged for RSI. The Scotia analyst has an Outperform rating and $7.25 target. I copied and pasted the latest note below.
A Messy (but Transitory) Quarter
OUR TAKE: Rogers Sugar reported headline numbers that came in below expectations. That said, a significant part of the shortfall was the result of one-time acquisition-related costs and transitory issues at the Taber and Montreal plants, which we expect to normalize in Q1/F18, on a run-rate basis. As such, our views on RSI remain unchanged. We continue to see value from the combination of the company's predictable and cash- generative legacy business (5.5% dividend yield on a 68% payout ratio for 18E) with its high-growing LBMT platform (now estimated at ~30% of total sales and growing in the mid- to high-single digits).
KEY POINTS
RSI reported Q4/F17 adj. EBITDA of $19.3M vs. our estimates at $25.8M and consensus at $25.6M (see Exhibit 1). After adjusting for one-time acquisition-related costs, consulting fees, and inventory adjustments, Adj. EBITDA would have come in at $22.3M. The shortfall vis-a-vis our estimate was largely related to legacy adj. gross margins, which came in at $134.2 per metric tonne (vs. our estimate of $159.8). This was driven by: (1) higher raw material costs / lower by-product revenues and higher maintenance costs at Taber, and (2) operating inefficiencies due to defective operating supplies at the Montreal plant. Moving forward, we expect these issues to abate and normalize in Q1/F18 and are modeling F18 adj. gross margins of $144 per metric tonne, similar to F17 levels.
Volumes for the quarter came in modestly below expectations (183.4k tonnes vs. our 185.2k) resulting from weaker export volumes that were related to Canada-specific U.S. quota deliveries. Moving forward, RSI expects total volumes to increase by 5k MT driven by expectations for: (1) Industrial segment to decrease slightly, (2) customer segment to remain flat, (3) liquid segment to increase by 10k MT YoY, and (4) slight increase in the export segment due to incremental sales to Mexico.
We made modest downward revisions to our gross margin assumptions and tapered our volume growth for F18. We are now looking for an F18 payout ratio of 68% and F18 exit leverage at 2.5x. Lastly, we highlight that RSI is investing ~$15M to $20M in capex starting in F18 to become compliant on air emission standards for the F19 beet harvesting season. Ccall commentary suggests that there could be general improvement in efficiencies from this investment (we do not model any in).