EFOODS’ QoQ earnings fall on lower seasonal sales

Profits are, however, an impressive 34% higher over the previous year.

KARACHI:

Engro Foods has announced its quarterly results for the three-month period ended March 31, 2013, recording a net profit of Rs653 million in 3QFY13 as compared to Rs486 million for the same period of the preceding year (translating into growth of 34% YoY). However, on a sequential basis, Engro Foods’ earnings are down 33% from the preceding quarter, during which it recorded a profit of Rs977 million.

An analyst note issued by Zeeshan Afzal from Topline Securities says that the fall in earnings is because of a seasonal decline in volumes. In all, Engro Foods’ net sales declined 11% from the previous quarter to Rs9.6 billion in 3QFY13.

“However, improved process efficiencies have sequentially helped gross margins to improve, which restricted the decline in gross profitability,” the note continued. “As compared to 2QFY13, the company’s gross margins rose by 150 basis points to 29.5%, while gross profits declined by 6% to Rs2.8 billion.”

The company’s gross margins now stand 618 basis points (6.18%) higher than last year, which AKD Securities says in a note is attributable to a drop in contribution from the low-margin ice cream segment (seasonally low sales), as well as improvement in margins following a raise in UHT milk prices in September 2012.

Higher distribution expenses also restricted the company’s profits. The 18% higher costs incurred under this head are attributable to spending on advertisement campaigns for Engro Foods’ ‘Thanda Meetha Pan’ ice cream and packaging costs incurred due to a re-launch of its Olper’s brand of milk.

These, “along with a 114% rise in administrative expenses has also led to attrition in operating profitability,” adds a research note from Taurus Securities. “Resultantly, operating margins dipped to 12.5% from 16% in the previous quarter.”

Going forward

Taurus Securities says in its research note that the recent hike in dairy products will start having a positive effect on the company’s balance sheets starting from the next quarter, which will help improve both its topline and margins. AKD Securities, too, foresees a sequential growth in revenues, especially in the month of Ramazan, which will fall in the third quarter of this calendar year.

Published in The Express Tribune, April 19^th, 2013.

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