Warehouse occupancy being impacted by escalating food prices, according to Lineage.
In the turbulent economic climate of 2021, Lineage Inc., a leading temperature-controlled warehouse operator, faced a daunting challenge. High food prices and tariff uncertainty put pressure on customer inventories, leading to cautious ordering patterns and potential supply chain disruptions.
Operating across North America, Europe, and the Asia-Pacific region, Lineage Inc. manages 485 facilities with a total of 3.1 billion cubic feet of space. Despite the external pressures, the company's revenue growth was impacted, as evidenced by some year-over-year revenue declines and volatility in operating income. For instance, the company's Q2 2021 revenues of $1.35 billion showed relative stability, but operating income declined significantly compared to the previous year.
Tariff uncertainty, primarily involving imports and supply chain components, exacerbated these issues by increasing costs and complicating sourcing decisions for Lineage's customers, who are predominantly in the foodservice and perishable goods sectors. High food prices contributed to inventory management difficulties, reducing stocking levels and demand for cold storage and transportation services.
Lineage Inc.'s CEO, Lehmkuhl, described the pricing environment as "competitive but stable." He emphasised that the company's strategy is aimed at setting the stage for strong operating leverage when the industry rebounds. To navigate these challenges, Lineage has focused on diversified service offerings, portfolio investments, and operational adjustments.
The company's service offerings extend beyond temperature-controlled warehousing, including freight forwarding, customs brokerage, drayage, and truck transportation. Despite a 3% year-over-year decline in pallets processed through its facilities, Lineage Inc. reported a slight increase in storage revenue per pallet in the second quarter.
However, the company's adjusted funds from operations (AFFO) for the second quarter was 81 cents per share, a 6 cents increase year over year. Lineage Inc. lowered its full-year 2022 AFFO guidance by 20 cents per share to a new range of $3.20 to $3.40 per share. The company also reduced its adjusted earnings before interest, taxes, depreciation, and amortization guidance by 4% at the midpoint.
Physical occupancy at Lineage Inc.'s facilities was 74.6% in the second quarter, a 230 basis points decrease year over year. Despite these challenges, Lineage Inc. is preparing for strong operating leverage when the industry rebounds. The company's focus includes revenue growth, optimizing labor productivity, and controlling controllables.
In summary, 2021 presented a challenging environment for Lineage Inc. due to high food prices and tariff-related uncertainties impacting customer inventories, resulting in moderated financial performance and an outlook of careful adaptation rather than strong growth. However, the company is taking strategic steps to mitigate these risks and prepare for industry recovery.
[1]: Source: Lineage Inc. Q2 2021 Earnings Release [3]: Source: Lineage Inc. Q1 2021 Earnings Release [4]: Source: Lineage Inc. 2021 Form 10-K Filing [5]: Source: Lineage Inc. Q4 2020 Earnings Release
In the realm of diversified service offerings, Lineage Inc. extends beyond temperature-controlled warehousing to freight forwarding, customs brokerage, drayage, and truck transportation. The high food prices and tariff uncertainties, affecting mostly foodservice and perishable goods sectors, have impacted the demand for cold storage and transportation services, resulting in reduced stocking levels and a moderated financial performance for Lineage Inc.
