Almarai’s Q4 misses estimates, says Al Rajhi Cap

Almarai Co.’s Q4 2016 net profit of SAR 488.5 million came in below Al Rajhi Capital’s expectations of SAR 542 million, mainly due to SAR 27 million in one-off expenses and likely higher other expenditures, the brokerage firm said in an earnings review.

The dairy giant’s revenue of SAR 3.6 billion also fell below estimates of SAR 3.8 billion, due to a 2.4 percent year-on-year (YoY) decline in sales of the core dairy and juice segment, it added.

“While the company mentioned challenging environment, which most likely refers to lower consumer spending, we believe price competition and down-trading would also have played a significant role in the revenue decline of this segment,” the report said.

Despite lower revenue growth, gross margin and operating margin were each 150 basis points higher than Al Rajhi Capital’s estimates, boosted by lower input costs, along with continuing gains in production efficiency and better cost management.

Operating profits (SAR 661.5million), therefore, were in-line with estimates, the brokerage added.

Key aspects to focus on going forward will be revenue outlook, and how it will be affected by the macro environment and competition; and sustenance of margins, given that most gains from lower input costs may have already been incorporated in the cost base.

Al Rajhi Capital maintained its target price for Almarai at SAR 61.4 per share and a ‘neutral’ rating on the stock for now – a revision is scheduled post the earnings call on Jan. 17.