Is packaged ice in a freezer at the grocery store or gas station necessary?
www.arcticglacierinc.com
www.arcticglacierinc.com
Arctic Glacier packaged ice
- Thread starter Weekly
- Start date
Q1/05 Comments and OutlookJuly 5/05The Doctor said:
Q1/05 net loss of $5.7M exceeded Q1/04 loss of $3.0M due to addition of fixed overhead from acquistions during 2004 when they expanded into the densely populated US northeastern states. Mgt. stated in 2004 earnings releases their plans are to integrate the acquisitons and improve profits. In Q1/05 comments they have continued to emphasize that an improved bottom line is on the way pending integration of acquisitions. Debt levels have increased from 26% in Q1/04 to 83% in Q1/05 to finance the acquistions. Q2/05 earnings will need to be $6M plus which should be achievable as they move into the busier spring and summer quarters.
We reviewed the 2003 and 2004 cash flow statements and in both years they funded capital expenditures (maintenance and acquisition costs) with new financing. In 2003 the financing was from a new units issue and for 2004 it was from debt. Distributions were funded from earnings and depreciation which used up the operating cash flow. We prefer if the maintenance portion of capital were funded from operating cash flow and not financed. In 2003 maintenance capital was $9M and $16M for 2004 which used up all the earnings from each year. In this regard they appear to be falling a bit further behind as they are not able to afford to repair their existing equipment from current earnings. Q1/05 earnings were -5.7M, Q1/04 were -3.0M. Revenues increased due to acquisitions by $2.6M, but expenses went up by $5.8M of which $1.6 was increased depreciation. They made 4 acquisitions during the year most of which were in Dec/04. Mgt comments that it takes 18-24 months to integrate acquisitions which is a fair comment. They claim the larger loss in Q1/05 is due to greater fixed overhead, and they will manage costs better as integration of acquisitions progreses. Q2 and Q3 are their only profitable qtrs as this is a seasonal business. We tend to dislike seasonal businesses for income trusts. AG is coming out of their slow period so there will always be apprehension associated with waiting for the profitable qtrs. They used the slow season to make acquisitions which adds to their fixed costs and risk but is the best time to acquire a seasonal business. They will need to report very strong Q2 and Q3, to build cash reserves before the much slower winter quarters. The other new risk to Arctic is rising energy and maintenance costs of operating refrigeration equipment. Refrigeration equipment is maintenance intensive. Atlas and Versacold have this same exposure. Arctic Glacier will likely issue units to reduce their high debt ratio when they can announce big summer earnings. We do not expect much upside in the unit prices, and would reduce holdings above $11.50.
www.incometrustresearch.com rates AG.UN yellow arrow down their second lowest rating
Yellow Arrow – Down – Indicates that the unit price of this trust is predicted to decline and/or there is potential for a decrease to distribution payments. This rating is considering to be of significantly increasing risk. Trusts with the rating would be unsuitable for conservative investors.
