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SunOpta, Inc.(STKL)is a company that was known up until a few weeks ago as Stake Technology, Inc., thus the trading symbol of (STKL) that they will maintain for the near term.
You might say that I became interested in this company as the result of my advancing in age and thinking more about how to live a healthier life-style. Also, one can’t ignore the spate of news lately where it concerns the growing obesity problem in our society. Data shows in 1980, only 5% of our youth was considered overweight, but the latest data shows this has jumped to 15%. The data also shows that diabetes is growing astronomical in our society.
Thinking of this data, then we had in the recent weeks, the state of New York has banned junk foods in their public schools and will only allow a healthier variety to be stocked in their vending machines. This type ban has already been started in California and Texas public schools. I expect it to spread to other states in the near future.
Then I had the clincher just last week and it came from Kraft foods. And this is what they had to say:
Kraft Plan A Sign Of Growing Attention To Obesity Issue
Tuesday July 1, 6:56 pm ET
By Christina Cheddar Berk, Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--With obesity levels in the U.S., especially among children, on the rise, the battle of bulge is grabbing more and more headlines, and food manufacturers are taking notice.
Earlier Tuesday, Kraft Foods Inc. (NYSE:KFT - News) , the largest U.S. food company, announced plans to create a global council of advisers drawn from experts in obesity, nutrition, physical activity and public health.
Among the panel's top priorities will be to establish guidelines for portion size and nutritional content by the end of this year.
Then, over the next two to three years, Kraft will look to use these standards and measures to improve its existing products and provide alternative choices, where appropriate.
The Northfield, Ill., company, which is a unit of Altria Group Inc. (NYSE:MO - News) , also will eliminate all in-school marketing of its products, and establish new guidelines for advertising and marketing to children. Kraft also plans to increase the amount of nutritional information it shares with consumers.
Some analysts see Kraft's plan as a way to head off potential litigation from consumers who have become obese and to prevent the creation of tighter restrictions on advertising and product labeling.
To be sure, there are increased rumblings that both litigation against food manufacturers and heightened regulations could be on the horizon.
In fact, Food and Drug Administration (News - Websites) Commissioner Mark McClellan on Tuesday said food labels may soon be required to list the amount of trans fat in a product.
The agency first announced plans to require a trans fat listing in 1999, but has yet to put the rule into effect. According to The Wall Street Journal, McClellan's latest comments are a signal that the implementation of the labeling rules could be imminent.
Trans fat, or trans fatty acids, has been linked to higher cholesterol levels and increased risk of heart disease. Some scientists believe trans fat is more dangerous than saturated fat, which is currently listed on nutrition labels.
How Kraft will deal with issues such as trans fat isn't clear yet, but analysts don't expect the costs of carrying out the company's plans to have a significant financial impact on the maker of Kraft cheeses, Oreo cookies and Oscar Mayer meats.
"We view this mostly as a battle of public relations, and believe that Kraft is right to take a few somewhat preemptive steps," said David Nelson, an analyst at Credit Suisse First Boston.
Kraft's announcement follows a highly publicized lawsuit against fast-food giant McDonald's Corp. . Although the suit was dismissed, the case raised the specter that other litigation could be on the horizon.
Many food industry analysts believe companies such as Kraft are protected against such litigation because the companies offer a range of products. But, they say, it is difficult to know for sure.
Recently, a group of public-health advocates and attorneys met in Boston at a conference to discuss legal and legislative strategies for dealing with the growing problem of obesity.
According to the U.S. Surgeon General, the number of overweight children has doubled since 1980 and the number of overweight adolescents has tripled. Some 300,000 deaths each year in the U.S. are associated with being overweight or obese.
However, despite the attention paid to the issue, the public's desire for healthier products isn't clear.
"I'm not ready to embrace the notion that the masses are looking to eat healthier," said Evan Morris, an analyst at UBS Warburg (News - Websites).
Sales of organic foods and sugar-free foods are growing more quickly on a percentage basis than are some fat-laden or indulgent foods, Morris said. However, it is important to note these categories still make up only a small portion of the packaged-food industry's overall sales.
At the same time, companies often realize higher profit margins for organic and sugar-free foods, Morris said. The combination of higher profits and faster growth is making the category attractive, he said.
Pay close attention to the later portion of this news release and there you will see why I think SunOpta(STKL) is in the growth mode going forward in my opinion. Yes, you have probably guessed it! ( STKL) is heavily involved in the organic and natural food operations.
From STKL’s latest quarterly report released on May 7th, 2203, you find they achieved record sales and earnings for the three months ended March 31, 2003, realizing its 22nd consecutive quarter of record sales growth and first quarter with sales in excess of $40 million. Sales in the quarter increased by 78% to $41,411,000 as compared to $23,283, 000 in the first quarter of the prior year. These results were led by a 98% increase in sales within the Company’s vertically integrated natural and organic food operations, driven by a combination of internal growth and the acquisitions completed in late 2002. (Note some of this growth was from acquisitions and since this report STKL has made another acquisition that will be accretive immediately to future earnings. Also it should be noted that the first quarter is historically the lowest revenue quarter in the year for STKL.)
(STKL) is committed to growing their organic and natural food operations through acquisitions. Just completed is the purchase of Kettle Valley, a producer of apple based products. And considering that (STKL) currently has three operating business units: the Food group, which specializes in identity-preserved grain products and natural and organic food products, from seed to packaged product: the Environmental Industrial Group; a producer, distributor, and recycler of industrial materials; and the Steam Explosion Technology Group who market clean pulping technologies. I expect that management will divest their Steam Explosion Technology operations, and this has been hinted by management and the fact they have just changed the corporate name from Stake to SunOpta adds credence to this idea. I would expect that they will maintain the Environmental Industrial Group, especially in light of the front page article in today’s (July 5th) edition of Barron’s. This feature article deals with the growing impact that environment investing is gaining on Wall Street.
As indicated in their recent conference call, management is expecting to achieve revenues of $175,000,000 in 2003, an increase of 45% versus 2002. From listening to the call, I got the impression that management is low-balling this number because since the first quarter they have closed on the Kettle Valley deal, and with the lowest revenue quarter being the first quarter and they did $41,411,000, I think they are keeping a lower expectation to surprise shareholders with good news. We will know if this is true in only a few weeks as second quarter earnings are due the first week of August. And the fact that in the past week, the stock has reached a new 52 week high indicates that investors are expecting such news.
And finally I will mention that in the past few months, Stephen Bronfman has added 1,200,000 shares of (STKL) to his personal holdings, and his investment firm, Claridge Israel, LLC has purchased another 1,200, 000. In total, Bronfman and his investment firm now own 14,043,412 shares of (STKL) stock. In case you don’t recognize the Bronfman name, they are one of Canada’s richest families and they made their fortune in Seagram Whiskey. Ironically, they sold Seagram for a small fortune and now they are investing in natural and organic food operations. You might say that they can recognize those good and wholesome grains!!!
I have only been invested in (STKL) for a short time and my return has been excellent to this point. But I think the future is just beginning for this industry and I would like to think that STKL could be the vehicle to participate in this potential growth. People do have to eat, and let’s hope that we all move toward a more health diet.
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