May 11, 2012 / 4:23 PM / 6 years ago

UPDATE 1-Alliance Grain delays pasta plant as profit slips

* Pasta plant on hold to 2013, earnings weak

* Pressure seen from credit crunch, competition (Adds comments from analyst, company)

By Rod Nickel

WINNIPEG, Manitoba, May 11 (Reuters) - Alliance Grain Traders Inc shares dropped as much as 6 percent on Friday after the company reported sharply weaker quarterly earnings and said it was delaying plans for a pasta plant.

After markets closed on Thursday, Alliance said it has delayed plans for Western Canada’s first major durum wheat-processing plant for pasta - a project the federal Conservative government had held up as an example of good things to come from its decision to end the Canadian Wheat Board’s monopoly on sales of the region’s wheat and barley.

Alliance, a leading exporter of pulse crops such as lentils, also reported first-quarter earnings of C$2.8 million ($2.8 million), or 14 Canadian cents per share, down from C$7.2 million, or 36 Canadian cents a share, a year earlier. Demand for pulse crops has slumped from importers in countries such as Turkey due to tighter credit conditions.

Alliance’s poorer than expected quarterly results led National Bank Financial to cut its rating on the company’s stock to “underperform” from “sector perform” and its share-price target to C$10.50 from $12.00.

“We had expected Q1 to be weak but we underestimated the magnitude of the effect the global credit crisis would have on demand,” National Bank’s Robert Winslow wrote in a note to clients.

The company is already seeing signs that the credit crunch facing its customers is easing, Alliance Chief Executive Murad Al-Katib said, adding that demand for food will rebound faster than discretionary buys in a weak global economy.

“It’s not rocket science,” he said on a conference call with analysts. Pulse crops are “a basic staple food, protein, and basic nutrition.

“Capital will flow there because it’s a need-to-have.”

Winslow, however, said Alliance’s growth may also be threatened by the emergence of Russia and other countries as stiff competition among pulse crop exporters.


Alliance said it is cutting capital costs as it seeks to restore profits.

It said construction of the pasta plant, announced last year, will now start in 2013, a year later than expected, as Alliance monitors changes in the North American grain industry. Among those changes are the end of the Wheat Board’s grain monopoly and the pending sale of top grain handler Viterra Inc to Swiss commodities trader Glencore International PLC , the company said.

Alliance already acts as a supplier to Glencore, but Al-Katib said Glencore’s entry into Canada “adds uncertainty” about the functioning of the remodeled Canadian grain market, mentioning specifically transportation patterns for crops and how Viterra’s durum mills will run under new ownership.

Alliance unveiled plans for its C$50-million durum- and legume-processing plant near Regina, Saskatchewan, last October with Canadian Prime Minister Stephen Harper in attendance.

The government says the end of the Wheat Board’s wheat and barley monopoly on Aug. 1 will encourage more investment in Western Canadian grain processing.

Alliance shares were down 45 Canadian cents, or 3.7 percent, at C$11.79 late on Friday morning on the Toronto Stock Exchange, after touching a record low earlier in the day.

$1=$1.00 Canadian Reporting by Rod Nickel in Winnipeg; Editing by Janet Guttsman; and Peter Galloway

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