Oaktree, where value investing thought leader Howard Marks (Trades, Portfolio) is co-chairman, increased its stake last Friday in SunOpta Inc. (STKL, Financial), a company where it is pushing for change as the biggest shareholder but where few other prominent value investors have been active.
Oaktree found opportunity to increase its position when a weak earnings report released March 1 precipitated a decline in the company’s stock price. Shares of SunOpta dropped 15.3% from the market’s close Feb. 28 through March 2, registering their lowest price since August at $6.10 a piece. On March 3, Oaktree bought 3 million additional shares, reflecting a 26.5% holding increase that built his ownership to 14,333,333 shares, or 16.7% of the company.
SunOpta joined Oaktree in reviewing its operations starting in October and constructed a “Value Creation Plan” to maximize profit for shareholders. The plan, which aims for $30 million in product-driven annualized EBITDA enhancements and $20 million in working capital efficiencies over the next 12 to 18 months, features four pillars: portfolio optimization, operational excellence, go-to-market- effectiveness and process sustainability.
“As we implement the four pillars of our strategic plan, we will refine our product portfolio, improve execution, broaden our sales effort and build a sustainable platform for profitable growth,” SunOpta President and CEO David Colo, appointed Feb. 6 in a management shakeup, said in a release. “We believe SunOpta is well positioned to benefit from the growing trend for healthier foods and we are building the platform for long-term achievement of our strategic goals and increased returns for shareholders."
Parts of the plan, like divesting of non-core business lines and impairment charges, as well as weak beverage and fruit sales, impinged on the company’s fourth-quarter earnings results which fell below its expectations.
SunOpta’s revenue declined 6% from the prior year’s fourth quarter to $297.5 million. Its net loss of $33.5 million, or 41 cents per share, deepened from $30.1 million, or 16 cents per share, for the same periods. It ended the quarter with $1.25 million on its balance sheet, down from $2.27 million, and $244.4 million in long-term liabilities and debt, down from $339.03 million.
Over the last five years, SunOpta grew revenue at a 0.7% growth rate, while EBITDA fell at a rate of 8.8% and book value at a rate of 4%. In addition, its gross and operating margins have been in decline.
Only three other investors tracked by GuruFocus hold shares of SunOpta: Chuck Royce (Trades, Portfolio), Mario Gabelli (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio). Two, Chuck Royce (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio), reduced their positions in the fourth quarter.
SunOpta shares have gained 39% over the past five years, including a 3.6% rise year to date.
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