"A census taker once tried to test me. I ate his liver with some fava beans and a nice Chianti." -- Hannibal Lecter, The Silence of the Lambs
Man, I wish I felt as good as that census taker right now. See, I bought Premium Standard
The stock of this integrated pork producer is getting barbecued Thursday in response to first-quarter earnings. Actually, strike that: Barbecue is a slow process; this is more like being dropped into a turkey fryer. Revenue dropped 16% from last year as production volumes were 7% lower and prices fell almost 10% for live hogs and a little less than 5% for meat. And, like most operating leverage stories, trouble at the top line just gets worse as you go on: Margins just fell apart in response to the lower revenue, and operating income was only a fraction of year-ago levels.
So, what now? Certainly Premium Standard isn't alone in its misery -- other protein producers like Tyson
There a few other negatives also worth mentioning. First, what's the long-term outlook for corn prices if ethanol really gets going? Second, is there anything to read into the decision from the president and chief operating officer to retire back on July 7? After all, the quarter had to be looking pretty bad by then .
I'm really not sure if I'm going to hang on to these shares. I'm not pleased with management's apparent lack of communication with the Street. It's also true that there are many other stocks these days that look attractively priced (and don't depend on uncontrollable commodity markets), and sometimes the Foolish thing to do is cut your losses and move on.
For more related Foolishness:
- A (Chicken) Wing and a Prayer for Pilgrim's Pride
- Tyson Hopes You Feel Like Chicken Tonight
- More Squealing From the Protein Sector
Fool contributor Stephen Simpson owns shares of Premium Standard, but has no financial interest in any other stocks mentioned (that means he's neither long nor short the shares). The Fool has a disclosure policy.