"Hanover Foods Enters Consent Order With EPA Over Wastewater" $HNFSA

A reader sent us a heads-up about this story:

The U.S. Environmental Protection Agency is taking legal action to get Hanover Foods Corp. to address numerous alleged violations at the company’s wastewater treatment facility in Hanover, Pennsylvania, that included excessive levels of contaminants as well as floating solids and visible scum in the discharged water and receiving water.

“The number of alleged violations observed during inspections is appalling,” said EPA Mid-Atlantic Regional Administrator Adam Ortiz. “The company needs to identify why this occurred and present a plan to fix this so that the local waters that eventually feed into the Chesapeake Bay are protected.”

Under a consent order with EPA announced Feb. 25, Hanover Foods will conduct a study to determine the cause and how to correct these alleged water pollution violations that were identified during inspections by EPA and the Pennsylvania Department of Environmental Protection.

EPA alleges the company has failed to comply with a state-issued National Pollutant Discharge Elimination System permit to operate its own wastewater treatment facility at 1486 York Street to treat industrial waste before wastewater is discharged to Oil Creek, a tributary of Codorus Creek that feeds into the Susquehanna River in the Chesapeake Bay watershed.

Environmental inspections identified numerous alleged violations at the facility including discharges of water exceeding permit effluent discharge limitations, floating solids and visible scum in wastewater and receiving water, and violations of the permit’s operation and maintenance conditions.

We just received financial statements (embedded below) for Hanover for the quarter (second fiscal) that ended November 28, 2021.

During the first fiscal quarter (ended August 2021), Hanover lost $3 million and spent $6.4 million on capital expenditures. During the second fiscal quarter, Hanover lost a further $700k and spent a further $7.4 million on capex.

Hanover has borrowed an additional $24 million over the six months that ended November 28, 2021. Rising debt, rising capex, and flat-to-falling sales are a red flag that we have previously noted at troubled companies. Remember how we described Scheid Vineyards back in July 2019, avoiding a subsequent (further) 70% share price decline:

"Nobody who has done an asset valuation writeup of [Scheid] has commented on the deteriorating profitability and margins, or the fact that management has responded to it by taking on more leverage to make much bigger investments in the business."

Leverage is not that high yet as a proportion of assets (debt/assets 34%) or book equity, but total Hanover Foods liabilities are very high compared to the market value of the equity. Assuming a $50 share price for Hanover gives you an implied market capitalization of $36 million. So, total liabilities are 3.4x this. 

Hanover shares are coming to resemble an equity stub. We will have more about this in the upcoming March 2022 Issue of the Oddball Stocks Newsletter.

Hanover Fiscal Q2 2022 by Nate Tobik on Scribd

1 comment:

  1. sad to see this story unfold... going to pass on picking up a Hanover product in the grocery store now.