Quantum foods reported a significant decline in profits, predicting a cut in headline earnings. Reuters
DURBAN – JSE-listed Quantum Foods yesterday warned its shareholders that its half-year profits to end March were expected to decline by nearly half as the group battled with an increase in raw feed material costs against a declining eggs selling prices.

The group said the increased input costs affect its overall performance, resulting in a 42 percent cut in its headline earnings per share (Heps).

It said the costs would have a significantly negative impact on earnings in the first four months of the year.

“These factors will also impact earnings to be reported for the six months to end March,” the group said.

Quantum Foods is a focused primary agricultural business that has four focus areas, namely animal feeds, eggs and layer, livestock, broilers and related businesses on the African continent outside South Africa.

The group’s shares fell marginally by 1.73 percent to close at R340 as the update seconded a dimmed trading statement to the market last month.

Quantum foods said the decline in Heps would translate into a 34.5 cents fall in earnings per share.

“Earnings per share of the company will be at least 42 percent or 34.6c lower than reported in the comparable period,” the group said.

The group said Heps would now be lower than 48c and earnings per share less than the 82.4c reported last year.

It said last year’s earnings were exceptionally high, and were supported by low-feed raw material costs and a significant increase in egg selling prices. The increase resulted from a national shortage of eggs following the outbreaks of avian influenza in the second half of 2017.

“The national layer flock has now recovered to levels above those of the pre-avian influenza period in 2017, and the expected pressure on egg selling prices resulting from increased supply has started to materialise in the four-month period,” the group said, adding that the below-average rainfall in the maize producing areas of South Africa for the current marketing season was also expected to result in a substantial increase in feed costs for the 2019 financial year. 

“This increase in feed costs will negatively impact margins, especially in the egg business,” the group said. It said margins in the egg business decreased by 13.6percent, compared to last year, while egg production costs increased.

“The company expects egg selling prices to further decrease in the remainder of 2019 as the full effect of the expected egg supply and demand imbalance, in a weak consumer environment, manifests itself,” the group said.