By Noha Baraka and Farida Salama / Tuesday April 21, 2020
Obourland Food Industries (OLFI EY): The company’s 1Q20 consolidated net profit grew c28% y-o-y to EGP68.1m, according to a bourse filing. (Company release)
Our comment: This comes c11% above our estimate of EGP61.5m, mainly on an EGP4m booked as FX gains, lower than expected SG&A expenses, and slightly higher margins. Revenue came in largely flat y-o-y at EGP583m, missing our estimate of EGP628m by c7%. Gross profit (including depreciation) grew c24% y-o-y to EGP143m, largely in line with our estimate of EGP145m, leaving margins to stand at 24.6%, 4.6 pp higher than a year earlier and 1.5 pp higher than our estimate. We attribute the higher-than-expected margins to a higher-than-expected cost savings from the installation of the 3 new Tetra Pak A3 speed production lines, as well as higher discounts received from Tetra Pak on the new packaging. Some c9% lower than expected SG&A expenses (up c5% y-o-y) caused a c6% beat on the EBITDA level (up c45% y-o-y) to stand at EGP101m, leaving margins at 17.4%, 5.2 pp higher than a year earlier and 2.1 pp higher than our estimate. Some EGP4m were booked as FX gains during the quarter, adding to the bottom line beat. On a segmental breakdown the beat on the top line level is mainly coming from the cheese segment. The cheese segment revenue came in largely flat y-o-y at EGP551m, missing our estimate of EGP597m by c8%, mainly on a c6% lower than expected units sold (down c2% y-o-y). Despite that demand increased significantly amid the coronavirus outbreak, the company couldn't keep up with the demand and couldn't increase its utilization rate to reach its full production capacity given that usually they plan production lines upgrades and replacements during this quarter, and the 3 new Tetra Pak production lines came on stream in December and the new processed cheese line was planned to be moved to the new factory in 1Q20. The cheese segment gross profit came in largely in line with our estimate at EGP135m (up c24% y-o-y), leaving margins to stand at 24.6%, 4.6 pp higher than a year earlier and 1.6 pp higher than our estimate. Juice and milk segments revenue dropped c4% y-o-y to EGP31m, but came in largely in line with our estimate of EGP32m, while its gross profit grew c24% y-o-y to EGP8m, beating our estimate by c9%, leaving margins to stand at 25.7%, 5.7 pp higher than a year earlier and 2.6 pp higher than our estimate. The company mentioned in its earnings release that milk volumes surged significantly y-o-y and Obourland is continuing with its plan of launching the 200ml flavored milk offerings, while the juice segment volumes were down y-o-y due to the current conditions and due to the fact that 1Q usually does not play in favor of juice products. The company is planning in 2Q20 to decrease its juice products’ prices to increase its competitiveness and sales.