With declining margins and lower volumes eating up most of its profits, Engro Foods reported a massive 70% year-on-year decrease in its earnings, according to company’s financial results for the first half of calendar year 2014 (1HCY14).
A subsidiary of Engro Corp. – Pakistan’s largest private-sector conglomerate – the local foods giant reported an after-tax profit of Rs329 million or Rs0.43 per share during the six-month period ending on June 30, 2014, compared with Rs1.1 billion or Rs1.45 per share it earned in the corresponding period previous year.
The company’s earnings declined by 76% to Rs110 million or Rs0.14 per share compared with Rs460 million or Rs0.60 per share in the corresponding period of 2013.
The results were below market expectations, according to analysts. The company’s volumes grew meagrely while costs, distribution and finance costs in particular, shot up, hitting the gross margins, they said.
Despite price increases, the company’s sales revenue increased only meagrely, hitting their ability to fully pass the rising costs, said Topline Securities analyst Zeeshan Afzal.
The company’s revenues for the period under review increased to Rs19.9 billion, up 5% over Rs18.9 billion for the corresponding period of 2013.
“Engro Foods’ gross profit margins were around 27% last year, which decreased by more than 8% to around 19.6% in the 1HCY14,” Lakson Investments Chief Investment Officer Khurram Shahzad said while citing reasons for the negative growth. “The finance cost increased by 38% QoQ and 36% YoY.”
According to Topline Securities, Engro Foods reported profits of Rs110 million or Rs0.14 per share in the second quarter of 2014, down 50% compared to Rs219 million or Rs0.29 per share it earned in the first quarter of the year.
“During the second quarter, revenues of the company declined by 2.2% to Rs9.8 billion but gross margins increased by 10 basis points to 20.5%. As a result, gross profits of the company declined by 1.7% to Rs2 billion,” Topline report said. However, the major hit to the profits came from a 18.1% increase in distribution cost and 38.6% increase in finance cost.
“Declining margin has been an issue but we can’t increase prices abruptly because of the market’s competitive nature,” said Engro Foods CEO Sarfaraz Ahmed Rehman.
Published in The Express Tribune, August 6th, 2014.
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