Premium Standard Farms Inc, the sixth-largest US pork processor, will launch a public offering of its stock next week just as consumers' taste for bacon and other pork products weakens. Still, the IPO is expected to be warmly received by the market since the Kansas City, Missouri-based company makes money, boasts tangible assets and makes proven products, analysts said.
"It's not rocket science. This is a good, solid, understandable business with revenues and earnings," said Sal Morreale, who tracks IPOs for Cantor Fitzgerald. "Even in this environment, the deals with the good numbers can get done.
Premium Standard's facilities in Missouri and North Carolina have the capacity to process about 4.6 million hogs per year. The company is also the second largest owner of sows in the US
Despite the seasonal nature of a commodities-driven business like pork, analysts said the Premium Standard IPO will attract investors who have cooled on "wait and see" companies that lack proven track records.
This week biopharmaceutical company XenoPort Inc slashed the price of its IPO to $10.50 a share, down from an expected range of $14 to $16 a share. XenoPort, an unprofitable company years away from releasing a potential product, seemed like a riskier bet in a market where many IPOs have been scaled back or canceled, analysts said.
Premium Standard said it will not reap any benefits from the offering.
Some shareholders, including affiliates of Morgan Stanley & Co Inc, are selling or reducing their interests in the company. The shareholders plan to sell 12.5 million shares in a range of $15 to $17 per share. The underwriters are authorised to buy about 1.9 million shares to cover any overallotments, according to a regulatory filing by Premium Standard.
The offering is expected to price June 9, according to research firm Dealogic. The stock is set to trade on the Nasdaq National Market under the symbol PORK.
For the fiscal year ended March 26, 2005, Premium Standard had net income of $67.7 million on total net sales of about $927.6 million. The results were buoyed by historically high pork and hog prices, Premium Standard said. For fiscal 2006, it expects its net income and sales to be "substantially lower."
"We're no longer getting that boost from the Atkins diet faze. But that's not unexpected because that was a swing in consumer demand and there's lots of competing meats out there," said Jim Robb, director of the Livestock Marketing Information Center.
Diets that emphasised protein and fats over carbohydrates have lost popularity, contributing to a 25-percent spike in inventory of frozen pork and a drop in the wholesale value of hogs, analysts said.
The commodities markets for pork bellies, which are cured and sliced to make bacon, have also been hit on concerns that the backlog of supply and the rate of new hog slaughtering will outpace demand.
The front-month price of pork belly prices on futures markets has fallen about 40 percent in the past year, while the front-month price of lean hogs has fallen 11 percent. A futures contract is an agreement to buy or sell a commodity at a specified price and date.
Despite concerns of Americans losing their taste for pork, international markets remain a strong growth option for Premium Standard and its peers, analysts said.
"The export demand for pork is still excellent. The foreign market component is very positive," Robb said.
Pork products are the largest source of meat protein in the world and the third largest source in the United States, according to the regulatory filing by Premium Standard.
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