Giant Coop CHS Continues Late on SEC Filings

Giant Minnesota agricultural cooperative CHS (Cenex Harvest States) is now late with their original estimated late filing with the SEC for the year ending August 31, 2018.  The company had previously stated they would hope to have the filing submitted by 11/29/2018 (yesterday)–but as of this moment no filing is found.  Investors almost always assume the worst from a late filing–and to be later than the announced ‘hoped for date’ just adds fuel to the fire.

Recently (in October) the company announced that an employee had performed an act of fraud on the company and earnings were likely overstated by a total of $190 million over the course of 3-4 years.  Additionally this caused assets to likely be overstated by around $200 million.  Needless to say this event raises questions about how a singular person could execute a large fraud over a number of years without it showing up in an audit–obviously very materially poor checks and balances.

CHS is a $30 billion dollar revenue coop with total assets of $17 billion and as such this is a minor event—BUT anytime something like this happens it calls into question the competence of management and the financial systems in place.  Additionally previously, in 2015, the coop made an ill advised investment in fertilizer maker CF Industries after raising funds for their own $3.3 billion dollar nitrogen plant-which was subsequently cancelled.  This investment has been nothing short of a disaster.

Fortunately CEO Carl Casale was shown the door in May, 2017.  Mr Casale was an utter disaster.  In addition to the above a CHS affiliate in Brazil went bankrupt in 2017 and CHS was ‘surprised’ by the bankruptcy–this cost the coop $200 million.

In spite of the continual missteps the company had profits of $576 million for the 1st 9 months of 2018.  A strong balance sheet can mask a lot of poor management.

Recall that the company has numerous preferred stock issues outstanding and had been a ‘darling’ of investors for many years.  Those shares, which had already been knocked lower simply because they are perpetual preferreds continue to trend lower.

The CHSCM 6.75% Reset Preferred are now trading under $25 as shown below  (as called to our attention reader aarod)

At this point the CHS preferreds are moving into the ‘show me’ stage.  Show me that you have fixed the issues–show me you don’t have more issues–show me you aren’t such damned fools.

We await the recent financials and could initiate a tiny new position depending on the filing.  We say tiny because we need a higher level of confidence in management.  The balance sheet has been stellar–but is it real–we certainly hope so.

12 thoughts on “Giant Coop CHS Continues Late on SEC Filings”

  1. Hi Tim:
    With such thin margins the question will be what was/is the dividend coverage with the restated earnings over the last 3 years and over the last 3 quarters and what is the trend in coverage – i.e. is the coverage getting stronger or deteriorating? Let’s wait for the restated earnings to be released. Maybe some tax selling in December. Maybe not.
    Does anyone reside in the Twin Cities area? Will anyone be attending the annual meeting in Minneapolis on December 6-7?

    One of the main purposes of an annual meeting is to review the last audited annual report. If the restated audited financials are not available next week will the annual meeting still be held? Does not seem like it would be a normal practice to for the board to review restated financials if they do not exist on December 6??????

    You are providing a great service Tim and appreciate all the work that you are doing. Thanks so much!

    1. Thanks Dave. I am in Minneapolis area, but am not currently and owner.

      Seems like we should see the financials any minute–maybe a late Friday filing? I am most curious to see them.

  2. thanks for this update. I have been reading your updates and they are informative. I have 500 shares of CHSCL and a little bit concerned about managements statement that the incident was by one employee. In addition, last years failed investment calls into question whether I should continue to hold the shares which I have owned since 2015.

    1. Hi Will–I do have some level of confidence that the ship gets turned around–assuming the filed reports clear up the financials. I think Casale went ‘rogue’ with power and money and it took 6 years to catch up to him. Historically these types of things taint a company for a year or so–we need a few quarters of straight talking honesty from the company.

      1. Several wise people have stated, never touch issues with accounting fraud until it has been fixed. As far as missing a bargain, these have traded lower before…CHSCO was in mid $24 range in 2013. And presently sits over $27 still. The delay makes me nervous and probably keeps me on the sidelines.

        1. Grid–the way Casales was quietly let go last year was suspicious. I am concerned about a BOD made up of unknowledgable folks–poor oversight. I suspect they are fine–but as you say these things have a way of growing some.

          1. Tim, I will be honest. I got my sins of holding NSS and ALLY-A, but other monies, I have been burrowing into utility issues lately. Im a bit nervous, but I can afford to be, so it isnt like I need to be at the top of the class. I even went back into GJP today. I sold out at $23 earlier in past year sometime and forgot about it. Another guy on another forum, tipped me off it was dropping, so I bought 400 at $21.85. Very modest issue of course being a synthetic adjustable. But being backed by a senior Dominion note makes it a safe issue. I have owned this one off and on for many years.

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