The inflation bug has most of us worried. Recently in Israel the CPI was release and showed a 4.7% surge in prices. Obviously, this is not just a problem in Israel. Throughout the world, inflation, especially food inflation, is alive and well, and has been for quite some time. While at first glance, investors might think that food stocks should benefit from higher prices, in practice they have performed poorly over the last few quarters, as they have been unable to pass their higher costs on to consumers.
This is why Wednesday’s earnings report from G. Willi Food International (NASDAQ:WILC), was interesting. For consumers, the earnings report signals more food price hikes coming down the road. For G. Willi, it means a return to strong growth.
Why do you ask? Because when commenting on the report, CEO Zvi Williger said:
Furthermore first quarter’s results demonstrate that we are beginning to regain the momentum that had been building over the past few years, as we have been able to successfully pass on some of our costs to our customers.
The problem that has plagued food stocks of late is that they haven’t been able to pass on costs. The fact that G. Willi has started to do so, could potentially prove to be a big boost to its bottom line.
As for its report, the company showed strong revenue growth aided by recent acquisitions, like Shamir Salads, who produce healthy Mediterranean salads, like Hummous.
While the company refrained from providing guidance for the rest of the year, if we see a drop in the price of food materials, G. Willi could potentially benefit.
Disclosure: The author’s fund has a position in WILC. He has no position in any other stock mentioned as of May 28, 2008.