What’s Bad For Consumers is Good for G. Willi (WILC)

Written by: Aaron Katsman | May 28, 2008

Aaron Katsman
IsraelNewsletter.com

The inflation bug has most of us worried. Recently in Israel the CPI was released and showed a 4.7% surge in prices. This is obviously 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. They have been unable to pass on their higher costs to consumers.
This is why today’s earnings report from G. Willi Food International (WILC), is 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?

Because commenting on the report, CEO Zwi 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, potentially could prove to be a big boost to their 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: Author’s fund has a position in WILC. He has no position in any other stock mentioned as of 5/28/08.

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Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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1 Comment »

Comment by Amit Chokshi on June 3, 2008

Depending on what food segment they operate in, food cos have in some cases been able to pass on food costs to customers. Having been invested in WILC for nearly 18 months I can say that WILC mgmt does not engender much trust from shareholders.

First, the results are impossible to compare. Zwi does not break out Shamir or Kirkeby or Baron revenues from Gold Frost and the other parts of WILC. So if all of the growth was from acquisitions, we can’t really tell. Same with the margins. And I suspect because the core WILC business is sucking wind, that’s why mgmt won’t release divisional results. As a result, larger funds with people that do real analysis don’t have the data to make any meaningful analysis. Zwi should follow the example of companies like Sadia (SDA) that break out segment revenues.

Secondly, Zwi wasted PRs and conference calls on this Russian deal and now he won’t close it, that’s bush league and he needs to learn how to deal with US based investors that want more transparency and less “selling the dream” that is coming from him.

Thirdly, another change at the CFO level, when is this ever a good thing?

WILC is cheap and it could do well this year but Zwi is not someone larger US based investors trust. Rather than provide more transparency he covers everything up, has management turnover, and then talks about things he can’t deliver on, and doesn’t own up to any mistkes (Laish). Not the type of manager I want to align myself but I discovered this over the course of investing in WILC. However, from a valuation perspective I’m in WILC since it’s not much more than book value at this point and has some decent growth prospects.

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