Basic Food Fund Receives Early Christmas Gifts

Although we have experienced five consecutive down days in the market, some components of the “BFF” have apparently had an early visit from Santa.

Tyson Foods (TSN): The USDA awarded a 16.8 million pound order to Tyson, slated for delivery in the first quarter of 2009. The chicken will be utilized for school lunch programs. USDA’s chicken buying agenda is intended to aid protein producers, which have experienced a very tough year, plagued by soaring input costs and lower selling prices. Pilgrim’s Pride (PPC), the nation’s largest chicken producer, received a 30 million pound commitment.

Imperial Sugar (IPSU): The company was upgraded by BWS Financial from a sell to a hold rating. One upgrade usually isn’t too big of a deal, but when it’s the only research coverage a company has, it is certainly a noteworthy event. BWS’s previous IPSU actions were both negative, the last being more than eighteen months ago. The company also came out with a nifty packaging innovation, offering a 12 pack of premeasured ¼ cup servings, of non clumping brown sugar. This will enable those who enjoy baking added convenience.

Pep Boys (PBY): Insiders have had a voracious appetite for their own shares, as two more insiders plunked down $50,000 of their own money to nab shares, adding to PBY's previous week’s tally of $280,000 in purchases. The company’s sale leaseback transactions have been generating huge gains, but those gains have been cleverly hidden on its balance sheet. PBY has closed several successful sale leaseback transactions, netting gains of $173 million or about $3.32 per share. The company has been able to defer reporting these gains, and incurring income taxes, by recording them on its balance sheet as a liability entry under the listing of “deferred gains on asset sales”. This tricky maneuver in the short run enables the company to understate their actual income, creating the perception it is "weaker" than reality.

Steelcase (SCS): Although SCS’s results might have been more deserving of a lump of coal, the company was still able to produce breakeven results for its third quarter, slightly above prior company estimates. Sales were down about 10% from $885 million to $811 million, however the company’s cost reduction efforts proved fruitful, as operating expenses as a percentage of sales decreased 110 basis points from 27.6% to 26.5%. SCS also updated its guidance for its fourth quarter, with a sales range of $650-700 million, resulting in a anticipated net loss between 4 and 10 cents per share. The company announced its intent to close its Atlanta plant, eliminating 300 jobs. SCS intends to cut an additional 150 white collar positions within the next 18 months, on top of the 100 positions previously reported. The company repurchased 558,000 shares in the quarter, and has $215 million remaining within its $250 million stock buyback plan. Management also announced it was reducing its quarterly cash dividend from 15 cents to 8 cents in order to conserve cash, which was certainly expected.

Con Agra (CAG): The company pleased the Street by delivering a sound second quarter report, as well as reaffirming its earnings guidance of $1.50 for the balance of its fiscal year. CAG reported operating income of 43 cents versus estimates of 38 cents.

Tax selling pressure should abate: This will be the last week of the year for holders to offset their gains by selling their losing positions, as the end of tax selling season should help reduce selling pressure among BFF components. Please have a joyous Christmas or Happy Hanukkah!

Disclosure: Long PBY, CAG, SCS, IPSU and TSN.