The Basic Food Fund Gets Leaner

by: Mark Krieger

Despite a 1.3% gain in the DJIA the past two weeks, the "BFF" went the wrong way - electing to go on a diet, by shedding 2.8% from $150.05 to $145.91. BFF's demise was attributable to three components : Winn Dixie's (NASDAQ:WINN) 12% loss coupled with 8% selloffs in both SLE and SWY. The probable passing of the Stimulus package next week , could set the fund back into forward motion.

Component updates:

CKR: the operator of Hardees and Carl Jr. released fourth quarter sales figures that were positive. "Our brands continue to appeal to our existing consumer base as well as new consumers who have traded down from casual dining chains," said Chief Executive Officer Andrew F. Puzder. "Even in today's challenging economic environment, consumers realize the value of our premium quality menu offerings." The company produced a .3% blended sales gain in its fiscal 2009 fourth quarter versus the previous year's quarter. Carl's Jr's average company owned location, realized an annual sales increase of 2.3% to $1.52 million, while Hardee's enjoyed a 4% jump to $993.000 - tantalizingly close to the magic $1 million mark.

The company also updated its 4th quarter cost trends. Food and packaging costs as percentage of sales are expected to decrease 15 basis points, while payroll expense is slated to fall 20-35 basis points. Occupancy costs are expected to jump 60-70 basis points, due to higher depreciation costs associated with its remodeling program. Interest expense will rise $4 million due to "mark to market" charges, relating to the company's interest rate swap agreements. As of the end of its fiscal 2009 third quarter ended Nov. 3, 2008, CKE Restaurants, Inc., through its subsidiaries, had a total of 3,110 franchised, licensed or company-operated restaurants in 42 states and in 14 countries, including 1,185 Carl's Jr. restaurants and 1,912 Hardee's restaurants.

IPSU: The company posted first quarter results, which beat earnings estimates, thanks to a $16.1 million litigation settlement. If the litigation gains were omitted, earnings would have been off the mark, being $23 million light on the top line and producing a loss of $1.32 per share, more than twice the 59 cent loss anticipated. SG&A expenses soared, as a percentage of sales, more than doubling from 4.9% to 10.6% due to a lack of sales from its plant shutdown. Although SG&A costs rose only 3% on a net basis, from $10.6 million to $ 10.0 million, management clearly needs to prioritize getting these costs under control and fast.

Regarding insurance proceeds: the company is expected to receive $210 million (about $18 per share) to rebuild its Port Wentworth plant, and in addition, collect as much as $43 million in business interruption insurance proceeds (about $3 per share). Goldman Sachs' (NYSE:GS) apparently likes what it sees, as they recently bumped up their ownership stake 27% from 670,000 shares to 844,000 shares. They now own 7.1%, making them IPSU's third largest shareholder behind Barclays Global Investors and Schultze Asset Management. It is interesting to also note the dramatic decrease in the company's short interest position. In just the last twelve months, IPSU's short position has plummeted 90%, from 3.3 million shares to only 381,000 shares. Clearly, the "smart money" does not want to be short these shares any longer.

SFD:- Larry Pope, president and chief executive officer and Robert W. Manly IV, executive vice president and chief financial officer, will make a presentation at the Consumer Analyst Group of New York Conference at 5:30 p.m., Eastern Standard Time, Tuesday, February 17, 2009 in Boca Raton, Florida. The presentation will be webcast and can be accessed live on the Internet here. It also will be archived online at this location. I'm glad to see management is finally attempting to promote their company - as this action is way overdue.

TSN: The company held its annual shareholder's meeting and the content of the meeting stressed the financial improvements in the chicken unit already realized, have been due to recent production cuts, new products, and customer service. "We have made significant progress in this area in the last three to four weeks," interim Chief Executive Leland Tollett said. "We still have work to do and cannot rely on industry fundamentals to get to where we need to be." It seems the company has finally reached an urgency to get poultry operations back on track, it is certainly about time!

SLE: The company met 2nd quarter earnings estimates, as it posted sales of $3.3 billion and earnings of 21 cents per share (SLE actually lost .02, if you account for its .23 impairment charge).The company's North American retail and fresh bakery groups showed strong revenue gains of 8.4% and 10.6% respectively, however weak international demand, exasperated by the strong US Dollar, took its toll.

SLE was successful in reducing costs, as its SG&A costs were trimmed 50 basis points from 30.9% to 30.4%, while its interest expense decreased 15% from $48 million to $41 million. The company also repurchased 11.4 million shares in the open market, at an average price of $9.01. Management reduced its full 2009 guidance by about 7%, ranging from .72 to .79, but still equating to a reasonable multiple, of only 13 times estimated earnings.

BRID: the stock has been inactive for the past eight trading sessions (a new record) .The last time it traded was on Jan 21st, ,when 700 shares changed hands. On Friday, the stock moved up 5 cents to $3.77, on a single trade of 142 shares. Next month , the company should report improved first quarter results, as input costs moderate. First quarter earnings should also be aided by a $10 million tax loss carry over, which BRID can utilize to offset future income tax liabilities.

The "BFF" index components: SCS, PBY, JBLU, SWY, GAP, WINN, SVU, CKR, BRID, CAG, SLE, IPSU,TSN and SFD.