Steve's Value Picks

IPSU has become too risky for me

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I have entered orders to sell my positions in Imperial Sugar (IPSU) due to the recent explosion at their plant in Atlanta, Georgia. This was my favorite stock as outlined in my previous blog. I read an article which indicated that Imperial obtained this plant in 1997 when they acquired another company (I believe it was named Dixie Sugar). The article said that acquiring this company enabled Imperial Sugar to almost double their revenue. I was not sure how many sugar plants that Imperial operated but apparently the number is few.

I know that Imperial will no doubt recieve insurance payments to cover their losses from the explosion. I assume that there will be lawsuits against the company as a result of the 12 employee deaths and the employee injuries. I also believe that they will be able to make up some of the production shortfall by increasing production in existing facilities. They will save on labor costs from this plant no longer operating. It opens up options for them regarding whether and where to rebuild. My fear is that increasing production at other facilities will not be able to make up the production shortfalls as a result of the loss of this plant. I believe that they will take a large hit on revenues, and lose market share as a result of not being able to deliver the necessary product to meet their committments. These are my fears.

In my mind there are now too many variables operating and the stock has become too risky for my tastes. In the long run, I have confidence that Imperial will continue to generate solid income as they have in the past, but I am expecting a shortterm downside hit after their next earnings statements are released.