Lineage’s earnings grow through post-pandemic ‘major inventory rebalancing’

Temperature-controlled warehouse operator Lineage Inc. said on a Wednesday quarterly call that its customers remain growth-oriented but acknowledged that food inventories have stabilized at lower levels.

Total throughput at its facilities hasn’t changed all that much since the pandemic, but customers are holding less inventory than they did prior to COVID. Food producers ramped production in 2022 in efforts to rebuild stock levels, but they overshot the mark and were left holding more merchandise than needed. The cold storage industry unwound inventories in 2023 and through the first half of 2024. Normal seasonal trends have returned since, Lineage President and CEO Greg Lehmkuhl said on the call.

Lineage (NASDAQ: LINE) reported a headline net loss of $80 million for the 2024 fourth quarter Wednesday before the market opened. Adjusted funds from operations (AFFO), which excludes depreciation, acquisition and restructuring costs, was 83 cents per share, a 73% year-over-year increase and 19 cents ahead of the consensus estimate. The adjusted result included a 5-cent-per-share tax benefit.

The Novi, Michigan-based real estate investment trust reported a 0.4% y/y increase in consolidated net revenue to $1.34 billion during the fourth quarter. The result included the benefit of recent acquisitions.

On a same-warehouse comparison, pallets processed through its facilities dipped 0.7% y/y, with storage revenue per pallet off 0.9%. Physical occupancy was 80.3% in the quarter, which was 160 basis points lower than in the year-ago period.

However, the changes largely reflect a return to normal seasonality, Lehmkuhl said.

The company is calling for full-year 2025 AFFO of $3.40 to $3.60 per share, a 6% y/y increase at the midpoint of the range. Adjusted earnings before interest, taxes, depreciation and amortization guidance of $1.35 billion to $1.4 billion represents a 3.5% increase at the midpoint of the range.

The new guidance assumes normal seasonal patterns, no market turnaround and no impact from future acquisitions.

The implied growth rates are very close to the actual growth rates seen for full-year 2024 (AFFO per share up 6.5% and adjusted EBITDA up 4%).

“I think what’s been misunderstood is that we’re growing this company 4% total EBITDA, 6% AFFO per share in a major inventory rebalancing. In the stiffest headwind the industry’s seen in many years, we’re still growing, and we’re built to grow,” said Lehmkuhl.  

He noted most of Lineage’s customers are planning for higher sales in 2025.

“I think the upside here, that’s not in our guidance, is that what we’re hearing from customers is they’re acutely focused on increasing sales. They’re doing promotional activity … discounting … in order to get volume moving.”

The company has more than $1.5 billion in capital that could be deployed to fund acquisitions and new developments in 2025 without issuing equity. That isn’t the plan for the year. It normally invests roughly half that level each year.

Lineage raised $5.1 billion in gross proceeds from its July IPO, using $4.9 billion to pay down debt. Shares of LINE have fallen to $56.78 after nearly touching $90 shortly after the IPO. The stock was up 1.7% at 10:54 a.m. EST on Wednesday compared to the S&P 500, which was up 0.8%.

Lineage manages 488 facilities with 3.1 billion cubic feet of space across North America, Europe and the Asia-Pacific region. It also provides freight forwarding, customs brokerage, drayage and truck transportation.

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