Alls’ well for Nestle in 2Q17

KUALA LUMPUR: While Nestle (Malaysia) Bhd’s (Nestle) earnings for the second quarter of financial year 2017 (2QFY17) saw a drop of 14.2 per cent year over year (y-oy) to RM162.1 million, all is still well as its cumulative earnings (1HFY17) of RM162.1 million managed to meet 61.2 per cent of consensus expectations.

According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), the dip in earnings was caused by a stronger performance in the previous quarter as 1HFY17 is generally a seasonally stronger period.

And this effect was further exacerbated by external headwinds as such as the increase in raw material prices and the devaluation of Ringgit.

“The prices of major raw materials such as milk powders, coffee beans and palm oil had increased compared to the corresponding quarter,” said the research while adding that the increase had also caused the group’s gross profit margin for 2QFY17 to contract by -6.0 points to 26.6 per cent.

Despite the decrease in earnings, the research arm noted that increased competencies in Nestle had off-set the effect as the group’s revenue saw growth while its operating expenses had dropped.

“Nestle’s 2QFY17 revenue grew by +3.8 per cent y-o-y to RM1.3 billion attributed by the effective marketing as well as trade activities held for the month of Ramadhan and Hari Raya.

“These helped to deliver the desired growth for the current quarter. In addition, the export business contributed strongly to the revenue growth,” explained the research arm.

For operating expenses, the group saw a 15.9 per cent y-o-y drop in the expense due to operation efficiency initiatives and diligent cost management.

With that said, MIDF Research has guided that they will make no changes to their earnings estimates for Nestle pending the analyst briefing today (August 24).

Nestle’s stock maintains a ‘neutral’ call with an unchanged target price of RM82.76.