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Tuesday, January 19, 1999

Northland Cranberries Inc.
(Nasdaq: CBRYA)
Website: www.northlandcran.com
Price (1/15/99): $9 3/8


It was a cruel harvest for berrypickers and stockpickers. Shares of Northland Cranberries have not exactly been a bumper crop this season as an overabundance of the popular tart berry, high in Vitamin C and dietary fiber, has forced the company into drastic discounts. While welcome news to the cran-loving consumer, it has not been what financial statement loving investors wanted to hear.

Back in October the company had even announced that production would probably be below last year's levels. Coming off a record crop the year before, the 410,000 barrels the company plucked soon became the catalyst for an industry price war. With growers fetching less for their harvest due to the oversupply, the harvest of the fall of 1997 began to eat away at Northland's profit margins last year.

Yet the welcome expectations that the 1998 crop would be smaller, and the prices commanded higher, were not to be. The berries ran wild, and so did investors -- towards the exit. Rich in vitamins, poor in appreciation, the cranberry picker got plucked.


Based in Wisconsin, Northland Cranberries went public in 1987 as the result of consolidation between five different limited partnerships. Until 1993 the company was part of the Ocean Spray cranberry grower co-op.

With 25 cranberry producing marshes in Wisconsin and Massachusetts, Northland claims to be the world's largest cranberry producer. The company processes and then sells 100% cranberry juice blends under its namesake label as well as private label juices. Last year's harvest brought in more than 400,000 barrels of cranberries. The crops are picked in autumn.


Income Statement
12-month sales: $128.6 million
12-month income: $2.9 million
12-month EPS: $0.19
Profit Margin: 2.3%
Market Cap: $180.9 million (19.3 million shares)

Balance Sheet
Cash: $0.6 million
Current Assets: $71.3 million
Current Liabilities: $21.8 million
Long-term Debt: $64.3 million

Price-to-earnings: 49.3
Price-to-sales: 1.4


When is a melody a malady? Irish rock quartet The Cranberries may sing of "Salvation," but that is a concept that seems far away for fans of these cranberries. Yet, the way out this time wasn't necessarily after the 1998 harvest. No. Despite the record 1997 harvest, which would eventually send prices falling, investors continued to bid up the shares until they peaked this past May.

As the company grew through acquisitions and marsh buyouts, revenues and market share soared. Over the past year the company has gone from commanding 8.6% of the cranberry juice sales to a hearty 12.6% stake. This past quarter revenues soared 86%. This is amazing growth, of course, but if earnings don't follow, and they haven't given the margin crunch, Wall Street interest wanes.

So the writing was on the wall, spelled out by a rich harvest that warned of a fiscal slowdown six months before the stock caught on.


The November quarter was rough for the company. Analysts had been expecting a $0.06 a share showing before the company pre-announced and then reported a solitary penny a share in earnings. As heartening as 12.6% market share appears in light of the monstrous Ocean Spray co-op the company once belonged to, that market share has slipped from the 12.9% piece of the juice pie Northland had back in the spring.

Today, shareholders are the recipients of one of the more generous shareholder perks around -- every year the company sends out a free gift pack of cranberries and juice. To investors who have suffered with the stock since the May highs, it has been one costly perk. Still, the gracious gesture is telling of a company that cares enough about shareholders to show a bit of appreciation.

But what about some capital appreciation? The industrywide harvest is naturally beyond Northland's control. The company has attempted to diversify through new juices and other new products -- last year's Minot Food Packers acquisition now finds the company selling cranberry sauce.

The company has also managed to take advantage of sector apathy. Last month the company closed on a deal to purchase the Eastern juice division of Seneca (Nasdaq: SENEA) for a paltry $28.3 million. That subsidiary generated sales of $105 million last year. For a company like Northland, trading at 1.4 times trailing revenues, to pick up a company at 0.3 times sales might prove to be a bargain if and when the sector recovers. The same can be said for picking shares of Northland today, before the stockpickers and berrypickers come back.

-Rick Aristotle Munarriz

Call Your Boss a Fool.

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