Value Portfolio

On December 22, FutureFuel announced its 2015 quarterly dividend program will only include a normal dividend of $0.06 per share, half as much as the $0.12 per share it paid in 2014. The dividend cut is due to uncertainty regarding the Environmental Protection Agency’s federal renewable fuel policy which wasn’t updated in 2014.

In its press release, FutureFuel President Lee Mikles stated:

“The Company’s Board of Directors has determined to reduce the dividend rate for 2015, primarily in reaction to uncertainty surrounding our biodiesel segment. The entire U.S. biofuels industry continues to be challenged by the lack of clarity from Congress on the $1 per gallon biofuel blenders’ credit coupled with considerable questions around the EPA’s renewable fuel standards (RFS) and renewable volume obligations (RVO). The Company has concluded this to be a prudent step in the current environment.”

The EPA’s renewable fuel standard establishes the amount of ethanol and other renewable fuels that must be mixed with other petroleum products. The agency had considered reducing the percentage of biofuels it required the industry to use but has not released any definitive figure. Most gasoline currently contains about 10% ethanol.

Management said that it is optimistic that the EPA will issue improved renewable volume obligations for 2015. It also noted that it is committed to a strong dividend policy. Shares of FutureFuel were mostly unaffected by the dividend cut, dropping less than 1% on the day. The company’s new quarterly dividend equates to an annualized yield of 1.85% at its current share price.

Sanderson Farms reported fourth-quarter fiscal 2014 revenues rose 4.6% to $760.9 million, compared to $727.1 million last year. Earnings came in at $93.1 million, or $4.04 per share, more than double the $45.3 million or $1.97 per share it reported in the same quarter of last year.

For the full year 2014, revenues rose 3.4% to $2.775 billion. Net earnings came in at $249 million, or $10.80 per share, compared to $130.6 million, or $5.68 per share in 2013.

The company benefited from improved poultry market prices which were generally higher than in 2013. The average Georgia-dock price for whole chickens were 7.1% higher during the fourth quarter compared to the same quarter of 2013 and about 5.7% higher for the entire year.

Its bottom line received a boost from a sharp drop in feed costs. Prices for its two main feed ingredients, corn and soybean-meal, fell 23.2% and 10.5%, respectively compared to last year. For the year, total feed costs for its processed flocks were 18% lower  than in 2013.

Silicon Image has been on a roller-coaster ride. The stock initially surged on December 5th following news that Qualcomm had acquired a 7% investment stake in its Qterics wireless-technology division, but then dropped hard back on December 18th after the company warned that it expects a year-over-year revenue decline in 2015 of approximately 10% due to a reduction in mobile design wins at one of its largest customers. CEO Camillo Martino assured investors that the company would remain profitable in 2015:

While we continue to execute on our long term strategic growth initiatives, we remain committed to reduce our operating expenses in 2015 and anticipate that even with a top line revenue decline, we will remain profitable with operating margin as a percent of revenue expected to be flat to slightly up for the year.

On December 22nd, activist small-cap investment firm Engaged Capital announced that it had acquired a 5.2% ownership stake in Silicon Image and sent a letter to the company’s board of directors demanding that it take action to unlock the company’s “significant unrealized value.” Engaged Capital believes that the stock is worth between $7.69 and $11.20 per share if management cuts operating expenses, aggressively repurchases shares with its $150 million cash balance, and separates its money-losing 60 GHz wireless business from its highly-profitable High-Definition Multimedia Interface (HDMI) business.

Engaged Capital is run by Glenn Welling, a highly-respected equity manager who previously worked at both activist fund Relational Investors headed by David Batchelder and Ralph Whitworth and investment bank Credit Suisse. Welling knows how to create shareholder value and I believe his involvement with the management team at Silicon Image will be good news for investors.

On January 9th, perhaps in reaction to Engaged Capital’s pressure, Silicon Image announced that it had retained investment bank Barclays plc to “explore strategic alternatives,” including selling itself. The stock jumped 6.9% on the news.

RPC Inc. is following up news that insiders purchased millions of dollars worth of the company’s stock in mid-December with the announcement that the company repurchased more than two million shares of the company’s stock in the fourth quarter. Combined with the 610,000 shares repurchased earlier in 2014, total share repurchase activity totaled 2.66 million. I love seeing both insider buying and corporate share repurchases occur at the same time! I am very bullish on RES for the long term, as are other analysts  including:

• RPC Recent Buyback Activity Isn’t the Only Reason Why I’m Staying Long
• RPC Inc.: A Better Way to Play the Oil Game

Stepan Co. is a Roadrunner “best buy” operating in the specialty chemicals sector, but the stock has lagged recently due to a temporary slowdown in its laundry-detergent and oil-recovery end markets. However, it is important to keep in mind that the company is a dividend champion that has raised its dividend for 47 consecutive years, is managed by the founder family, and has a strong balance sheet. A recent article is bullish on the company:

• 6 Dividend Champs With Double-Digit EPS Growth Prospects

Momentum Portfolio

Apogee Enterprises reported fiscal 2015 third-quarter revenues increased 23% to $244.4 million, beating Zacks Consensus Estimate of $232 million. Operating income jumped 62% to $20.6 million and EPS rose 42% to $0.47 as the company’s margins improved during the quarter.

“During the quarter, Apogee improved gross margin by 140 basis points and operating margin by 200 basis points,” said CEO, Joe Puishys. He added, “At 8.4 percent, our operating margin is at its highest level in five years. Overall Apogee converted 21 percent of incremental organic growth to operating margin.

The firm continues to benefit from a strong U.S. non-residential market.  Architectural Glass revenues rose 23% to $90.3 million, Architectural Services rose 10% to $56.2 million. Architectural Framing Systems rose 36% to $80.4 million. Excluding the acquisition of a Canadian company, organic growth was 19%.

The increased demand was evidenced by the company’s backlog growth of 65% to $494 million during the quarter—its highest level in six years. About 37% or $182 million is expected to be delivered in 2015 and the rest in 2016 and onward.

Management raised the lower end of its fiscal 2015 EPS guidance from a range of between $1.62 and $1.72 to $1.64 and $1.72. It also said it expects total revenue growth of over 20% for the fiscal year.

CEO Puishys also stated, “We have extended our long-term outlook to fiscal 2018 expectations for revenues of $1.3 billion at 12 percent operating margin.”