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Imperial Sugar Company (IPSU) |
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WIKI ANALYSIS
Imperial Sugar (NYSE:IPSU) is the largest publicly traded, independent sugar refiner in the U.S., accounting for a substantial portion of the entire U.S. sugar market. The company uses either sugar beets or raw cane sugar to produce refined sugar. Its brands include Dixie Crystals, Holly, and Imperial. For Imperial's fiscal year ended September 30, 2009, it sold approximately 15.2 million hundredweight, or cwt, of refined sugar.[1] Additionally, through joint venture operations we market sugar and other sweeteners in Mexico and Canada.
Imperial Sugar has sugar refining facilities in both Port Wentworth, Georgia, and Gramercy, Louisiana. In February 2008, an explosion at Imperial's Port Wentworth plant forced the company to shut it down. Imperial's insurance plan covers both lost revenue and the cost of rebuilding the plant, however, so the company will be able to resume business as usual (and with newer equipment to boot).[2]
Imperial, making use of the repeal of certain U.S.-Mexico sugar tariffs, has partnered with Mexican sugar refiner Ingenios Santos to supply it with sugar canes. Additionally, Imperial and Ingenios Santos will sell each other's products in their respective home countries, giving Imperial a foothold in the Mexican refined sugar market. IPSU also has joint ventures with firms in Canada.
Business Overview
Imperial Sugar only operates in the refined sugar business, which accounted for approximately 97.5% of consolidated net sales for the year ended September 30, 2009.[3] The company refines raw sugar into granulated sugar, brown sugar, and other confectionary sugar products, which it then sells to retailers, wholesalers, and food manufacturers. On the retail side, Imperial sells its own branded products as well as private lables.
Most of Imperial's raw sugar supply is priced from New York Board of Trade (NYBOT) sugar future contracts. Net sales in 2009 declined to $523 million, compared to the previous year of $592 million. This was a result of two factors: first, the price per cwt increased between 2008 and 2009 from $31.04 to $33.61; however, IPSU's total volume of sales declined from 18,501 million cwt to 15,163 million cwt, which explains the net decline in sales.[4]
Trends and Forces
LSCPI-Cargill Partnership Cuts Off Imperial's Main Raw Sugar Supply
Louisiana Sugar Cane Products (LSCPI), a cooperative that supplies 90% of the raw sugar used by Imperial's Louisiana refinery, teamed up with Cargill to build a new independent refinery.[5] The refinery is not expected to be operational until mid-2010, but LSCPI will supply it with its entire crop, effectively leaving Imperial's Louisiana plant without a supplier.[6] Imperial has already partnered with the Mexican sugar company Ingenios Santos S.A. de C.V to import raw sugar from Mexico, taking advantage of the repeal of sugar tariffs. However, whether this partnership will be more expensive for IPSU remains to be seen.
Imperial Faces More Competition and International Price Pressure: Tariff-Free Mexican Imports
Historically, U.S. domestic sugar prices have been twice as high as international prices.[7] Through tariffs and quotas, higher domestic sugar prices cost the U.S. government close to $1.68 billion a year to artificially maintain through the purchase and storage of excess sugar.[8] As a domestic U.S. producer, Imperial benefits directly from these inflated prices.
NAFTA was fully implemented on January 1st, 2008, repealing tariffs on the sugar trade between Mexico and the U.S.[9] As a result, Imperial has partnered with Mexican refiner Ingenios Santos S.A. de C.V. The partnership will supply Imperial with sugar to both refine and sell in the U.S., as well as give it access to the Mexican sugar market. However, with tariffs completely abolished between the two countries, other Mexican refiners can now also sell tariff-free refined sugar to U.S. consumers.[10]
Competition
- U.S. Sugar Corporation, a privately held company, is the largest sugar refiner in the U.S. by volume.[11]
- Domino Foods, Inc., which is a wholly owned subsidiary of Tate & Lyle PLC (TATYY).[12]
References
- ↑ IPSU 10-K 2009 Item 1 Pg. 2
- ↑ SeekingAlpha: Imperial Sugar: Insurance Coverage Adequate to Rebuild. May 16, 2008
- ↑ IPSU 10-K 2009 Item 7 Pg. 20
- ↑ IPSU 10-K 2009 Item 7 Pg. 21
- ↑ The Atlanta Journal-Constitution : Sugar refinery near Savannah determined to rebuild 04/13/08
- ↑ SeekingAlpha: Imperial Sugar: Insurance Coverage Adequate to Rebuild. May 16, 2008.
- ↑ The New Yorker: Deal Sweeteners Nov. 2006
- ↑ CATO Institute: America's Bittersweet Sugar Policy
- ↑ Imperial Sugar 2007 Annual Company Financial Report pg. 4
- ↑ The Atlanta Journal-Constitution : Sugar refinery near Savannah determined to rebuild 04/13/08
- ↑ U.S. Sugar Corp
- ↑ Answers: Domino Sugar Corporation
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