Astral warns of profit drop
Update notes lower demand and higher costs
Astral Foods, the JSE’s biggest poultry producer, issued a dour trading update on Tuesday, warning of “significantly lower” 2019 first-quarter profit.Lower consumer demand and higher prices of maize, a key production input in the poultry sector, look set to hamper Astral’s profitability in the first half of the 2019 financial year.
Astral Foods, the JSE’s biggest poultry producer, issued a dour trading update on Tuesday, warning of “significantly lower” 2019 first-quarter profit.
Lower consumer demand and higher prices of maize, a key production input in the poultry sector, look set to hamper Astral’s profitability in the first half of the 2019 financial year.
Astral’s share price rose 0.65% to R157.50 by 3.15pm, but independent analyst Anthony Clark said he still expected some price negativity with a dose of “maize and poultry reality” setting in. He said the recent rally in Astral’s share price, which had risen more than 8% since January 28, was unjustified based on “on-the-ground” maize fundamentals.
“Astral Foods has had an 8% run the past weeks on the first Crop Estimate Committee report on maize hectares planted. That report was flawed and overly optimistic because lateplanting had prejudiced the numbers.”
Clark said the late-February first production report and later reports (due to late planting) would show far more pessimistic maize forecasts. In its trading update, Astral said disappointing consumer spending during the first quarter of 2019 coupled with high poultry stock levels caused average selling prices to slip below those registered in the first quarter of 2018.
The market was warned in 2018 of a tougher outlook for Astral with raw material prices trending up and consumer disposable income under pressure.
Astral said that lack of rain, particularly in the central and western parts of the maize-producing areas following an El Niño weather pattern, caused the maize price to rise and would lead to a material increase in feed costs for the 2019 financial year. “Higher feed input costs and depressed poultry selling prices have resulted in significant pressure on profit margins,” it said.
Astral, however, pointed out that the comparative quarter in 2018 covered a period when the company’s core poultry operations traded at a record historical high then benefiting from low feed costs following a record maize crop for the 2016-2017 marketing year.
The first quarter of 2018 also saw selling prices for poultry products markedly stronger after avian influenza caused a shortage of broilers in the market. Despite the sluggish trading conditions, Astral said it was continuing with its strategy to upgrade and expand the Festive processing plant in Midrand. The company said the upgraded facilities would provide additional capacity for value-added and fresh products; supply had been hampered in the past due to capacity constraints.
Astral said the initial phase of the project was expected to be completed in 2020.
HIGHER FEE INPUT COSTS, DEPRESSED POULTRY SELLING PRICES RESULTED IN SIGNIFICANT PRESSURE ON PROFIT MARGINS