High Liner cites lower margins, exchange rates as Q2 net profit declines 47.5%

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LUNENBURG, N.S. – Stock in High Liner Foods Inc. (TSX:HLF) fell almost nine per cent Tuesday after the Nova Scotia-based value-added frozen seafood company reported a big decrease in second-quarter earnings despite a strong increase in sales revenue.

High Liner, which reports in U.S. currency, cited lower margins in Canada and an unfavourable change in the exchange rate among factors that saw net income fall 47.5 per cent to US$5.2 million or 17 cents per diluted share from US$9.9 million or 32 cents in the comparable 2013 quarter.

Adjusted income was US$7.5 million or 24 cents per share, down from US$9.2 million or 30 cents in the prior-year period.

Sales revenue increased 14.9 per cent to US$235.5 million from US$204.9 million.

“Second quarter earnings in 2014 decreased compared to last year largely as a result of lower margins on certain products in our Canadian business,” CEO Henry Demone said in a statement.

“Raw material costs in our Canadian business have increased in 2014, in part due to a weaker Canadian dollar, and have not been fully recovered through price increases to our customers.”

Demone added that many of High Liner’s major customers in the U.S. food service industry were continuing to experience soft sales, “creating a challenging environment for this part of our business.”

In addition, the company faced higher financing costs resulting as a result of higher average debt levels and less favourable changes in the valuation of an embedded derivative and interest rate swaps as well as US$1.6-million increase in stock-based compensation expense.

On the Toronto Stock Exchange, High Liner shares fell C$2.20 or 8.73 per cent to $23 on Tuesday.

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