Could Omega Protein be rethinking sales of human nutrition segments?
Omega Protein produces fish oil and fish meal from its harvest of menhaden, a forage fish species it catches in and near Chesapeake Bay and in the Gulf of Mexico. Poor weather at the start of the summer fishing season hampered operations, and based on early returns, the company expects the fish oil yield this year to be lower than average.
As a result, the company posted $93.9 million in revenues in its second quarter, compared to $112 million in the same period a year ago. The poor yields and restricted harvest were one factor, while a glut of fish oil on the international market and resulting lower prices was another.
Human nutrition sales save the day
A saving grace for the company has been the human nutrition segment, a sector of the company that was called into question in 2016 by the activist investment firm Wynnefield Capital. Starting in 2010 Omega Protein started to use the cash generated by the fishing business to move into the human nutrition as a way to smooth out the natural variances in financial results that arose out of the fishing business. The original strategy for this diversification saw the company purchase botanical ingredient supplier Cyvex Nutrition, whey producer Wisconsin Specialty Protein and lipid ingredients specialist Bioriginal. Wynnefield had argued that this effort, which cost the company about $150 million in acquisition costs, had been mismanaged and that that capital could be put to better use in improving the basic fish oil and fish meal business.
Omega Protein had also embarked on an effort to create a higher concentrate form of its base omega-3 oil that is sells into the dietary supplement market. It has since halted that effort, but the rest of the diversification strategy remains in place, despite management saying that the division remains the subject of an ongoing strategic review.
The most recent earnings results might serve as a vindication of that strategy. Human nutrition segment sales increased $5.7 million in the quarter.
"Results for our human nutrition segment continued to improve in the second quarter, although softer pricing and a slower than average start to the fishing season impacted animal nutrition segment results," said Bret Scholtes, Omega Protein's president and CEO.
