Companies / 17 August 2018, 06:00am / Sandile Mchunu
DURBAN - Tiger Brands’ share price tanked 10 percent after it flagged its earnings were expected to slide up to 37 percent with consumers under pressure in a slowing economy and as it counted the costs of its listeriosis fall-out.
It’s expected financial performance was in stark contrast to that anticipated by RCL Foods, which reported yesterday that it expected its headline earnings a share for the year to June to increase by between 41.7 percent and 57.5 percent.
This equates to a headline-earnings-a-share increase to between 90 cents and 100c from 63.5c in the previous year.
Shares in RCL Foods rose 2.29 percent on the JSE yesterday to close at R17.39, while Tiger Brands’ share price closed 8.94 percent down at R298.33.
The listed packaged goods firm attributed its expected decline in earnings to the significant impact of the recall of products and suspension of operations, involving certain of the company’s value-added meats processing facilities.
In March, the group suspended operations at its factories in Polokwane, Germiston and Pretoria, which the Department of Health linked to the listeriosis outbreak which has claimed more than 200 lives in South Africa.
In its six months to March, the group reported that the listeria outbreak had a negative impact on its results as it reported a 4 percent decline in revenue.
The recall associated with its value-added meat processing amounted to R415 million, but balanced at R363m, net of the R50m insurance claim and R2m in profit from the disposal of related property.
The company yesterday also said that its outlook was hit by the continuing challenging consumer and competitive South African environment, with ongoing volume and pricing pressures, significant cost increases derived from the adverse movement in the rand, fuel price increases, labour settlements and higher administered costs, which had yet to be recovered in selling price increases.
Tiger Brands expected its earnings per share from total operations including Haco for the year to end September to be between 421c and 709c lower, or between 22 percent and 37 percent lower than compared to last year.
The group also expects a similar decline in its headline earnings a share from total operations including Haco to be down by between 22 percent and 37 percent to between 475c and 800c, down from 2 161c compared to last year.
Nick Crail, an analyst at Ashburton Investments, said the trading statement was a large disappointment with very little detail.
“The statement mentions three factors affecting the numbers which are challenging consumer environment with ongoing pricing and volume pressures, significant cost increases and the listeriosis impact, which reduced revenues as plants closed and then increased costs associated with recalls,” Crail said.
He said this result was significantly weaker than their expectations, and their feeling would be that this was more of an operational miss than just the listeria outbreak and associated implications.
Ron Klipin, a senior analyst at Cratos Capital, said Tiger Brands was a highly diversified company.
“So it is highly unlikely that consumers would link all of the brands to the listeriosis outbreak,” Klipin said. The group had a plethora of brands, such as Jungle Oats, All Gold, Tastic rice, Fattis and Monis, Enterprise meats as well as a host of strong brands like Black Cat peanut butter, Liquorice All Sorts and Jelly Tots, he said.
“The trading update reflects the major downturn in the economy, lack of disposable income and customers looking to buy value at the best prices.
"This has resulted in retailers squeezing food manufacturers price wise in an extremely competitive market,” Klipin said.
He added that as part of this move retailers had been substituting private labels for brand names in order to sell these products at more affordable prices.
“This has enabled retailers to protect profit margins by a more flexible pricing policy,” he said.
Tiger Brands expects to release its annual financial results on or about November 22.
RCL Foods said its anticipated improvement in earnings was driven by the recovery in the chicken business unit, strong volume performances in the dressings, pet food and pies categories, lower interest costs and a tax credit related to an energy efficiency allowance.