Regardless of the financial systems and their relative security, people have to eat and the more people, the more they eat, so good agriculture stocks are smart long-term buys says Marc Johnson of Investment Reporter.

Winnipeg-based Viterra Inc. (Toronto: VT) is one of the food stocks that we regularly examine. We’ve upgraded this grain handling and marketing, agriproducts, and processing company to a buy.

That’s because it’s becoming increasingly profitable, yet it’s cheap. Viterra is now a buy for long-term gains and attractive dividends that may rise further.

In the year to October 31, we calculate that Viterra earned a record $274 million, or 74 cents a share. This excludes one-time costs for the impairment of goodwill, for integration expenses, and for losses on the disposal of assets. This was up sharply from $144 million, or 39 cents a share, the year before.

Sales rose more than regular costs. All three of Viterra’s divisions earned more.

In fiscal 2011, Viterra’s sales jumped by 42.8% to $11.8 billion. The higher sales reflected several factors: Higher sales from Viterra’s three divisions, capital investment, and acquisitions.

Why Did Revenue Rise So Sharply?

Viterra’s 2011 grain handling and marketing revenue shot up by 50% to $8.5 billion. It profited with much higher grain shipments from Australia, better grain shipments from North America, and a 13% rise in the global pipeline profit margin.

Viterra’s 2011 agriproducts revenue rose by over 32% to $2.4 billion. Simply, it sold more fertilizer at higher prices. Finally, the company’s 2011 processing revenue climbed by over 39% to $1.8 billion.

Viterra’s revenue rose thanks to net capital spending of $202 million on new projects, such as a malt facility in Australia and a canola crushing plant in China. Also, acquisitions of $7.8 million for new pasta and oats businesses raised the revenue.

All regular costs (including financing expenses) rose by 41.4% to $11.4 billion. As this was below the rise in revenue, Viterra’s earnings improved. The better profit is confirmed by a 37.6% rise in Viterra’s 2011 cash flow, to $497 million. This easily exceeded the net capital spending and acquisitions, as well as dividend payments of $37.2 million and intangible asset investment of $25.7 million.

Partly due to the much higher cash flow, Viterra’s net debt-to-cash-flow ratio is a safe 1.8 times. This also enabled the company to raise its dividend by 50%, to 30 cents a share. It now yields an attractive 2.9%.

In fiscal 2012, we expect Viterra to earn a higher 80 cents a share. Despite these improving results, the stock trades below its book value of $10.86 a share. Viterra is optimistic about its outlook.

When the Canadian Wheat Board’s monopoly on the marketing of crops ends on August 1, Viterra expects to profit from higher volumes and “optimizing its operations efficiencies.” It adds that “Strong fundamentals are expected to hold for global grain commodity markets.” And it foresees “positive harvest conditions in both South Australia and Western Canada.”

And Viterra’s global agri-business has extensive operations across Canada (30.2% of 2011 revenue), the United States (10.4% of revenue), Australia (10.5% of revenue), and New Zealand (3.3% of revenue). Viterra also has offices in major consuming countries, such as Japan, Singapore, China, Vietnam, India, Switzerland, Italy, Ukraine, Germany, and Spain.

Europe accounted for 8.7% of the revenue, Asia for 31.4%, and all other regions as a group for 5.6%.

This global diversification reduces Viterra’s exposure to problems in any one area. For instance, the company did well despite floods in parts of Western Canada last year.

Subscribe to Investment Reporter here…

Related Reading:

Related Articles
  1. Bonds & Fixed Income

    The Top 5 High Yield Bond Funds for 2016

    Learn about mutual funds and ETFs that invest in high-yield bonds. Read about the risks and rewards associated with investing in high-yield bonds.
  2. Chart Advisor

    Rare Earth Metals Continue To Struggle

    Rare earth metals are used in many of today's products and many investors are wondering if consumer demand is enough to offset the global economic slowdown. We'll take a look at how they are ...
  3. Mutual Funds & ETFs

    3 ETFs to Consider Before an Interest Rate Hike

    Learn about potential impacts of the Federal Reserve boosting interest rates and three ETFs that can help you capitalize on the perceived December increase.
  4. Mutual Funds & ETFs

    A Complete Guide to Tax Loss Harvesting With ETFs

    Using exchange-traded funds (ETFs) to harvest tax losses can be a smart way to maximize your portfolio's tax efficiency.
  5. Mutual Funds & ETFs

    Why ETFs Are a Smart Investment Choice for Millennials

    Exchange-traded funds offer an investment alternative to cost-conscious millennials who want to diversify their portfolios with less risk.
  6. Stock Analysis

    Will J.C. Penney Come Back in 2016? (JCP)

    J.C. Penney is without a doubt turning itself around, but that doesn't guarantee the stock will respond immediately.
  7. Mutual Funds & ETFs

    Should Investors Take a BITE Out of This New ETF?

    ETF BITE offers a full menu of restaurants. Is now the right time to invest?
  8. Financial Advisors

    5 Things All Financial Advisors Should Know About ETFs

    Discover five things all financial advisors should know about ETFs, including when ETFs may be a better choice for your clients than mutual funds.
  9. Stock Analysis

    The Top 5 ETFs to Track the Nasdaq in 2016

    Check out five ETFs tracking the NASDAQ that investors should consider heading into 2016, including the famous PowerShares QQQ Trust.
  10. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  3. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  4. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  5. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
  6. Can mutual fund expense ratios be negative?

    Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>

You May Also Like

Trading Center