Almarai posts in-line profit for Q2, says NCB Cap

Almarai’s Q2 2017 net profit of SAR 674 million -- the highest Q2 net income on record -- matched NCB Capital's estimates of SAR 664 million.

“We believe this growth in mainly attributable to a strong margin expansion due to lower commodity prices and higher operational efficiencies,” NCB Capital said in an earnings review on Sunday.

The dairy producer's higher net profit offset a 4.2 percent YoY decline in Q2 sales, which stood at SAR 3.76 billion, nearly 10 percent below the brokerage firm's forecast of SAR 4.17 billion.

The lower-than-expected sales volumes were hurt by lower dairy, juice and bakery sales during Ramadan, the Egyptian pound depreciation, and lower exports.

The second-quarter gross margins, which increased to an all-time high of 41.3 percent, topped NCB Capital's estimate of 40 percent.

Poultry sales continued to rise by 6.2 percent YoY to a record high of SAR 400 million in the same period.

The poultry division narrowed losses to SAR 6.58 million in Q2 2017, from SAR 76.2 million in the same period of 2016.

“We believe the increase in custom duties in Q1 2017 on imported poultry to 20 percent vs 5 percent previously and banning Brazilian poultry supported Almarai’s performance,” the brokerage firm said, adding that it expects the division to breakeven this year.

Meanwhile, Almarai’s bakery segment saw net profit decline 10.2 percent YoY due to weak sales growth. 

The dairy and juice unit's net profit dropped by 9.9 percent YoY, continuing to weigh on the company's overall profit.

NCB Capital recommended a “neutral” rating on the stock with a target price of SAR 52.7. 

Production efficiencies and cost optimization initiatives along with favorable feedstock prices support an upbeat outlook for Almarai's profit margins, the report said.