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Is it Time to Drop High Liner Foods (TSX:HLF)?

High Liner Foods (TSX:HLF) has historically been viewed as a great long-term investment option for a variety of reasons. The company’s strength in the market, strong distribution network, the massive portfolio of brands High Liner owns, and its attractive dividend have all been valid points to consider over the years, but given the recent earnings report, some investors may be reconsidering that view.

Let’s take a look at what the recent results mean for the company and whether investing in the seafood behemoth is still viable.

Q4 results are in…

Yesterday, High Liner announced annual and quarterly results for the fourth quarter of 2018. The results were underwhelming across the board, but to be fair, the company has been in the midst of a turnaround, so the less-than-stellar results weren’t exactly a surprise.

Specifically, sales witnessed a US$20.1 million drop to US$242.9 million, while gross profit came in US$4.2 million to US$40.3 million when compared to the same period last year. Adjusted EBITDA also dropped US$1.1 million in the quarter when compared to the same quarter last year, coming in at just US$12 million.

Net income witnessed a hefty US$15 million decline in the quarter, resulting in the company posting an US$800,000 loss, or a US$0.02-per-share loss for the quarter.

Worth noting is that those weaker figures were expected, and when viewed over the course of the entire year, the picture does improve somewhat, with High Liner posting net income of US$16.8 million, albeit still down over the US$31.7 million reported for the previous full year.

What does High Liner do now?

High Liner’s turnaround plan consisted of an organizational realignment and five core initiatives that the company believes will not only stabilize the business, but also usher in a period of growth. CEO Rod Hepponstall noted that the organizational realignment was complete and that the company was focusing the five areas it previously communicated, which include reining in costs, seeking out efficiencies across the organization, better integrating its Rubicon acquisition, and focusing on growth through various marketing efforts.

In short, High Liner has outlined a tall order, which could prove promising, if the company can deliver.

High Liner is facing tremendous headwinds, despite operating in a unique segment of the market. High Liner’s large portfolio of brands coupled with its dominant position in the frozen seafood market and attractive distribution network, which includes branded and unbranded retail as well as bulk-store products targeting both supermarkets and restaurants. If that weren’t enough, High Liner is also facing the prospect of declining fish prices in 2019, as a slew of other economic indicators and even consumer tastes continue to evolve.

Should you buy?

While High Liner is not the same investment it was a year ago, there is still some value in the stock provided you’re comfortable with the risk. In the past, I’ve argued that High Liner’s dividend was a good reward for taking on that risk, but given the decline in the stock price (35% year to date), there’s a growing consensus that a dividend cut might be one way for the company to usher in some savings in the future, particularly considering the dividend now stands at a jaw-dropping  yield of 8.22%.

High Liner may once again become a good investment in the future, but at the moment, it’s far too risky for me.

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Fool contributor Demetris Afxentiou has no position in any of the stocks mentioned.

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