Keels Food Products 3Q profit under pressure, top-line intact

Keells Food Products PLC (KFP) recorded higher top line but weaker profits for the quarter ended December 31, 2019, reflecting some lingering problems faced by one of the largest processed food markers in the country. 

Kicking off the October-December (3Q20) earnings season, manufacturer of Keells branded sausages, meatballs and crumbed items, reported earnings of Rs.1.95 a share or Rs.49.8 million for the quarter under review, compared to earnings of Rs.3.23 a share or Rs.82.4 million reported for the corresponding period last year.

Despite lower earnings, the firm’s top line advanced 12 percent year-on-year (YoY) to Rs.1.04 billion.

The operating profits of the firm fell 31 percent YoY during the quarter to Rs.75.9 million.

While Keells Foods Products could be a barometer for the wider consumer discretionary segment, the approaching quarter is expected to be relatively favourable, analysts who closely watch the stock opined.

Their assessment of the KFP share and the broader stock market comes on the premise that the recently introduced tax concessions and the easing rates could add a tailwind for the consumer related stocks to advance. 

Their expectations are largely based on the rapid upturn in consumer demand, which supports top lines of consumer goods companies. 

The considerable windfall that may stem from lower finance costs due to favourable interest rates could also fatten their bottom lines.

KFP’s finance cost rose to Rs.5.5 million during the three months under review from just Rs.167, 000 in the year earlier period. 

KFP has accumulated debt substantially during last nine months. 

The company had long term loans of Rs.135.7 million by end-December 2019 from Rs.18.5 million in April 2019. The short-term borrowings and bank overdraft had increased to Rs.204 million from Rs.20 million during the same period. 

Meanwhile, Sri Lanka’s per capita consumption of sausages, meatballs and crumbled products sold under the frozen meat category, remains low compared to regional markets, the company had stated earlier. 

Meanwhile, the poor performance of hotels, restaurants and catering establishments (HORECA), KFP’s largest customer segment, may have affected the firm’s performance, as the sector became an immediate casualty of the April 21 terrorist attack targeting churches and city hotels.

Bedsides these challenges, the processed food makers have been grappling for a few years to maintain their top line due to shifting consumer preferences towards healthier organic foods. KFP maintains that its products adhere to the highest level of quality standards.  

A large portion of the company’s livestock and spice requirements are supplied locally. 

Meanwhile, for the nine months ended December 31, 2019, KFP reported earnings of Rs.5.72 a share or Rs.145.7 million, a decline of 29 percent from the same period a year ago. 
The total sales for the nine months were Rs.2.8 billion, up 7 percent YoY. 

As of December 31, 2019, John Keells group had 90 percent stake in KFP.