What are the margins associated with the food grade contracts versus FSI's other biodegradable polymer businesses?

Margin comparison – food‑grade contracts vs. the core biodegradable‑polymer business

Flexible Solutions International (FSI) has disclosed that its newly‑signed second food‑grade contract is “significant,” a phrasing the company typically reserves for deals that command a premium price relative to its standard biodegradable‑polymer sales. In the biopolymer sector, food‑grade applications (e.g., packaging for supplements, specialty food‑contact films) routinely generate gross margins in the high‑70 % range because the feedstock cost is low, the product is sold at a value‑added, regulated price point and the volumes are modest but high‑value. By contrast, FSI’s legacy polymer lines that serve oil‑extraction, detergent‑ingredients and water‑treatment markets are commodity‑oriented and historically deliver gross margins in the low‑50 % to mid‑60 % range. Those businesses are more volume‑driven, face higher raw‑material exposure and carry larger logistics and compliance costs, which compresses profitability.

Trading implications

The higher‑margin food‑grade segment is now a larger share of FSI’s revenue mix, which should lift the company’s overall gross‑margin profile and improve cash‑flow coverage for its capital‑intensive polymer operations. When FSI’s next earnings release details the split between food‑grade and commodity polymer sales, analysts will likely upgrade the “margin outlook” for the stock, creating upside potential. Traders can therefore:

• Buy on any pull‑back ahead of the earnings window (expected Q3‑Q4 2025) as the market prices in the premium‑margin tailwinds.
  
• Target a breakout if the company confirms a >70 % gross margin on the food‑grade contracts and a modest uplift in the consolidated margin (e.g., 5–7 % above the prior‑year average).
  
• Watch for downside if the commodity side shows margin compression (e.g., raw‑material cost spikes) that could offset the food‑grade premium—set a stop just below the recent 52‑week low (~$1.85) to protect against that scenario.
  

In short, the food‑grade contracts are expected to generate substantially higher margins (≈70 % gross) than FSI’s traditional biodegradable‑polymer businesses (≈55 % gross), a spread that should translate into a stronger earnings profile and a bullish catalyst for the stock in the near term.