🔍Stocks in Focus

Cold storage giant Lineage (NASDAQ: LINE) goes from hot to cold … and maybe hot again

by
Dan Weil
Quantfury Team
lineage

Lineage (NASDAQ: LINE), the world’s largest cold-food storage company, entered the stock market with a bang in July, scoring the biggest initial public offering of the year. But the bang has turned into a whimper. 

The IPO totaled $4.4 billion, valuing the company at more than $18 billion. However, Lineage, a real estate investment trust, has seen its stock drop 29% since the IPO. Now it hopes to rebound.

The company is both a beneficiary and a victim of the Covid pandemic. It fueled the fire for Lineage, as consumers flocked to grocery stores while staying away from restaurants. They bought plenty of chilled and frozen food, boosting the fortunes of Lineage and its competitors.

The company did so well that it was able to execute the IPO. But the tables turned after the pandemic ended. Consumers returned to restaurants and cut back on their grocery shopping. Shoppers don’t need frozen food that won’t be eaten for weeks. And that means less demand for cold storage. Inflation has curbed consumer demand too.

But as the largest player in its class, with superior operations, Lineage seems to have the ability to withstand the tougher environment better than its smaller competitors.

The problem isn’t Lineage, which has expanded through acquisition. It’s the market in which it operates.

On the supply side, the boom in demand for cold storage during Covid led to overbuilding of new capacity. “We are seeing some competitive pressures as speculative development and new supply has come online,” Lineage CEO Greg Lehmkuhl said in the company’s latest earnings conference call.

Job cuts, earnings results

Last week, the company said it’s cutting jobs without specifying how many. “This step is essential to protect our long-term success and adaptability,” Lineage said in a statement.  

It posted revenue of $1.3 billion in the third quarter, up just 0.5% from a year earlier. It suffered a net loss of $543 million, widening from $50 million. It has a forward yield of 3.6%.

Still, Lineage’s leading position in the cold storage market offers it some stability. It controls 33% of the US market and 12% of the global market. 

Analysts say it has the best technology and technological innovation in the business, and they say the company can make $500 million to $1 billion of acquisitions in coming years. Population growth in emerging markets also could boost demand for Lineage’s services.

“We’re extremely well positioned to see operating leverage when volumes do recover, especially given our recent productivity gains and technology investments,” Lehmkuhl said.

So maybe the rollercoaster is headed back up.