High sales, margin expansion drove Almarai’s Q2 profit, says NCB Cap

Almarai's second-quarter net profit—SAR 628.8 million, 18.5 percent higher year-on-year--was well above NCB Capital’s and consensus forecasts of SAR 543 million and SAR 530 million respectively, the brokerage firm said in a results review.

“We believe the strong 2Q16 earnings were largely driven by a 10.3 percent YoY increase in sales, to a record high of SAR 4,025 million, and expansion in gross margins,” NCB Capital added.

Gross margins increased 149 basis points YoY to 39.5 percent, the highest Q2 margins since 2010, thanks to lower commodity prices and the company’s cost optimization initiatives.

Meanwhile, the brokerage added that losses in the poultry segment that continued to widen to SAR 76.2 million on an annual basis in Q2 remain a concern.

NCB Capital has a ‘neutral’ rating on the dairy and juice producer, with a target price of SAR 53.20 per share.