Corporate results: Engro Foods profit falls 23% on distribution issues

Results of the food giant are much below market expectations.


October 22, 2013
Depressed sales are mainly on account of distribution issues facing the company, price competition with Nestlé and overall slowdown in UHT milk market. PHOTO: FILE

KARACHI:


As problems persist in its distribution network, Engro Foods showed a negative trend both in terms of revenues and profit in the first nine months of 2013 as the company released on Tuesday its financial results which, analysts say, remained below market expectations.


A subsidiary of Engro Corp, Pakistan’s largest private-sector conglomerate, Engro Foods saw its earnings decline 23% to Rs1.24 billion or Rs1.62 per share in nine months ended September 30, 2013. It reported a profit of Rs1.61 billion, or Rs2.12 per share, in the corresponding period last year.

The local food giant reported net sales of Rs28 billion during the first nine months of 2013. This was a decline of over 4% when compared with Rs29 billion it earned in revenues during the corresponding period in 2012.



The quarterly results were even more depressing as profit fell a massive 78% to Rs127 million or Rs0.17 per share in the July-September period compared with Rs600 million in the same period in 2012. Revenues fell 5.6% to Rs9 billion compared with Rs9.6 billion in the corresponding period last year.

Lacklustre sales performance on account of persistent distribution issues, seasonal slowdown and higher selling and distribution expenses were the prime reasons behind the drop in nine-month earnings, according to BMA Capital Management.

The results, according to a Topline Securities research note, were much below initial analyst expectations. The distribution cost, which increased 6% to Rs3.8 billion and administration cost, which rose 22% to Rs748 million, dampened the bottom line, it said.

However, on the positive side, a 13% decline in finance cost to Rs586 million and 38% decline in tax expenses to Rs502 million provided support to the falling profit, the Topline report said.

It further said depressed sales are mainly on account of distribution issues facing the company, price competition with Nestlé and overall slowdown in UHT milk market.

On the other side, it said, the finance cost fell due to low interest rates while ongoing capital expenditures resulted in a decline in effective tax rate to 29% compared to 33% in nine months of 2012.

Published in The Express Tribune, October 23rd, 2013.

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