DURBAN – Poultry producer Astral Foods said yesterday that its operating profit eased during the first quarter to end December, blaming low consumer spending and high poultry stock for the decline.
The group said the constrained consumer spending, which characterised the country's economic realities, resulted in average selling prices falling compared to last year.
It said higher sales volumes culminated in a reduction in Astral Foods’ poultry finished goods stock levels at the end of December, adding that this caused the operating profit to fall significantly lower than last year's.
Astral said this would have a negative impact on the results to be reported for the six months to end March.
“It must be noted that the previous year's results for the same period were at a record historical high, benefiting at the time from low feed costs following a record maize crop for the 2016/2017 marketing year, while selling prices for poultry products were stronger due to the negative impact of Avian Influenza resulting in the short supply of broilers to the market,” the group said in a statement.
In the six months to end March 2018, Astral Foods reported 15 percent increase in revenue to R6.7 billion, mainly on the back of improved poultry supply and demand balance, which gave both volume and price support.
Operating profit increased 392.6 percent to R1.04bn, predominantly because of the significant improvement in the poultry division's profitability.
Ron Klipin, a senior analyst at Cratos Capital, said the profit warning by Astral was a result of input prices of soft commodities rising during the period with demand weakening.
Klipin said during the September 2018 year-end results presentation, Astral Foods indicated in its outlook for the 2019 financial year that raw material prices were in an upward trend and disposable income was under pressure.
The group said the lack of widespread rains, particularly in the central and western parts of the maize producing areas following an El Niño weather pattern, resulted in upward pressure on maize prices. which would lead to a material increase in feed costs for the 2019 financial year.
Astral Foods shares declined 0.24 percent on the JSE on Tuesday to close at R156.12.