Cold Stores profits plunge amid weak consumer sentiment, rise in costs

Weak consumer sentiments continued to weigh in on Ceylon Cold Stores PLC’s (CCS) performance as Sri Lanka’s largest beverage and frozen foods company filed one of its weakest quarterly performances for September.    

The manufacturer and retailer of Elephant House branded beverage and frozen foods reported earnings of Rs.2.01 or Rs.191.4 million in earnings for the July-September period (2Q19) compared to Rs.7.90 a share or Rs.751 million earnings reported for the corresponding period, last year.

The company’s share ended unchanged at Rs.747.50 on Friday’s market close. 

The sales and profits of the packaged food makers such as CCS has come under pressure as a result of weak consumer sentiments and disposable incomes and also due to the consumer shift towards more organic and healthier alternatives. 

In response, the company tweaked its strategy and introduced healthier alternatives such as sugar-free CSD variant ‘Go Sugar Free’ with no calorific sugar content and a range of fruit juices under the brand, ‘Fit O’. 

The company also entered into the ready-to-drink milk market under the Elephant House brand and recently entered into bottled drinking water market as well. 
The poor performance at CCS is a bellwether for earnings of consumer sector companies, which are mostly expected to be weaker. 

The financial accounts demonstrated that the company had spent heavily for sales and advertising to beat the odds of a weaker economy. 

Such expenses rose sharply by 35 percent year-on-year (YoY) to Rs.623.8 million.  Sales grew by 15 percent YoY to Rs.14.4 billion.

However, the cost of sales rose by a faster 20 percent YoY to Rs. 12.9 billion. 

Meanwhile, the company’s retail arm which runs around 80 Keells branded supermarkets, turned a net loss of Rs.73.2 million for the quarter from a profit of Rs.263.9 million a year earlier. 

Sales however rose to Rs.10.9 billion from Rs.9 billion recorded for the same quarter last year. 

The company does not typically provide information such as store sales and sales from new stores opened during the period in its quarterly statements, which would have provided a clear picture. 

Meanwhile, the company’s manufacturing arm generated a profit after tax of Rs.255.1 million for the three months, down from Rs.480.1 million a year ago on a revenue of Rs.3.6 billion—little changed from a year ago.  

For the six months ended September 30, 2018, the company reported earnings of Rs.4.53 a share or Rs.430.3 million compared to Rs.15.01 a share or Rs.1.43 billion reported for the same period last year. 

Revenue for the period was Rs.28.4 billion, up 14 percent YoY. 

As of September 30, John Keells Holdings held 70.66 percent stake in CCS while related party Whittal Boustead (Pvt) Ltd. held another 10.70 percent stake.