Corporate results: Nestle Pakistan’s earnings up 34%

Amount to Rs6.2 billion during six-month period

KARACHI:

Despite a decline in its profits during the second quarter, Nestle Pakistan boosted its net earnings by more than one-third during the six-month period that ended on June 30, 2015, the company’s financial results revealed on Wednesday.

The Pakistani subsidiary of the world’s largest food and consumer goods company reported a net profit of Rs6.2 billion or Rs137 per share for January-June period of 2015, up 34% when compared to Rs4.6 billion or Rs102 per share it earned in the corresponding period of 2014.



The company saw its revenues, for the period under review, increase by 6% to Rs53 billion compared to Rs50 billion it grossed in the corresponding period last year. The results were also accompanied by an interim cash dividend of Rs50 per share.

“The gross profit margin increased by 558 basis points compared to last year mainly due to extended cool weather positively impacting milk flush and relatively stable fresh milk prices,” the company said in a press release. The prices of dairy related commodities in international market coupled with stronger Pakistani rupee positively impacted the input cost, it said.

The company reduced waste in the value chain by approximately Rs844 million, which allowed improving margins and also reduction of prices for products, such as Nestle Milkpak and Nestle Everyday liquid, the company said.

Unlike its local rival Engro Foods, the Swiss foods giant is usually off the radar of market analysts for not being a liquid stock - the company has a very small free float (4.5 million shares), majority of which is held by foreign buyers. It is, therefore, hard to find analysts’ comments on this particular stock.

However, upon studying the results, Taurus Securities’ Zeeshan Afzal said Nestle’s performance in the second quarter was below expectations on a quarter-on-quarter basis.

The company’s earnings declined by 30% to Rs2.53 billion or Rs55.8 per share in the latest quarter compared to Rs3.6 billion or Rs81 per share it earned in the first quarter of 2015.



“Higher selling and distribution cost has eaten up much of their earnings in the second quarter,” Afzal said. The selling and distribution expenses for the second quarter clocked in at Rs4.6 billion, up 59% compared to Rs2.9 billion of the first quarter.

The company’s gross margins, too, declined from 37% as in the first quarter of the year to 32% in the latest quarter, Afzal said, which also had a negative impact on its earnings.

Nestle Pakistan, in a statement, attributed the higher distribution cost to the increased investment in product fixed marketing expenditure across key brands.

Published in The Express Tribune, August 27^th,  2015.

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