Strategic Movements August 2021
Virgin Galactic Price Increase
Virgin Galactic Holdings Inc. (SPCE) announced a price increase for space flight seats. Previous price: $250,000. Future price: $450,000 for space tourists, $600,000 for researchers and professional astronauts. The price increase announcement led to an 8% share value increase. It looks like Richard Branson is preparing to initiate yield management techniques he has honed at Virgin Airlines on Virgin Galactic. 2020 revenue of $230 thousand and irrelevant P/E ratio.
Congrats to Joe F. Sanderson, CEO of Sanderson Farms
Over a decade ago, I had the pleasure of speaking with Joe Sanderson of Sanderson Farms regarding appropriate production restraints on chickens in light of high increases in corn costs. Last month, Cargill announced a $4.5 billion bid for Sanderson Farms, a 30% premium over its market capitalization. Well done, Joe. Lynn Guinn: this will be fun for your team. Sanderson Farms’ 2020 revenue was $3.5 billion, and its P/E ratio, which was near 12 prior to the pandemic, recently increased to 26.3 despite significant volatility.
Donnie King is Keeping Price Increases up with Costs
Tyson Foods Inc. (TSN) reported a 42% increase in profits for the quarter ending in August. Meatpackers like Tyson are experiencing heavy demand for meat from reopening restaurants. However, they are also experiencing elevated costs from animal feed, labor, logistics, packaging, and unique pandemic expenses. Profits don’t increase unless revenue increases exceed cost increases. That is, as indicated in their financial reports, they are managing prices to cover cost increases and increased average margins from 4.7% in 2020 to 6.5% in 2021 in second quarter reporting. Well done Don King, CEO of Tyson Foods. 2020 revenue of $43.2 billion and P/E ratio of 12.3.
Kimberly Clark Struggles with Costs and Price
Kimberly Clark Corp. (KMB) reported a 40% profit decline for Q2 2021. Challenges begin with a 3% decline in revenue, largely associated with well-stocked consumers purchasing less paper towels and toilet paper as some return to the office. Challenges continue with input costs increases. CEO Mike Hsu stated an expectation for price increases to fully offset costs increases for the rest of 2021 and 2022. I strongly suspect Proctor & Gamble approves of that plan. Price competition on the paper aisle is not terribly irrational this go-round. Despite the bad news, stock prices remained relatively unchanged in the week following the announcement. Yet another indicator of the value of managing prices appropriately to manage corporate valuations as well. 2020 revenue of $19.1 billion and P/E ratio of 22.9.