RCL Foods flags increase in earnings

RCL Foods expects an increase in earnings for the six months to end-December, due to an improvement in its chicken business and its sugar division that benefited from the rise in global sugar prices.

The company said it expected headline earnings per share (HEPS), a main profit measure used in SA, from total operations to increase 41%-45.9% from the previous matching period’s 56.4c.

RCL is one of SA’s biggest food companies, and owns an assortment of brands including Yum Yum peanut butter, Ouma rusks, Sunbake bread, Selati sugar, 5 Star Super Maize Meal and Rainbow Chicken. It also produces pet food and feed for farm animals.

The world sugar price was much higher in 2023, peaking in November, which benefited RCL, but has dropped in 2024, so the benefit might not extend to the second half of the financial year, Smalltalkdaily research analyst Anthony Clark said.

RCL was among those hit by SA’s biggest outbreak of bird flu in the latter part of 2023, but has seen an improvement in its chicken business because of the lower maize costs. About 70% of the cost of producing a chicken is spent on feed.

Clark said the maize price rose to R4,200-R5,200 a tonne from June to December in 2022. But in the comparable period in 2023, maize traded at R3,600R4,200.

Poultry was traditionally RCL’s mainstay business until 10 years ago when the company bought Foodcorp, which gave it exposure to a wider array of branded consumer products. The company’s name subsequently changed from Rainbow Chicken to RCL Foods.

The company has hinted at splitting off its chicken business that has underperformed in recent years and is cyclical in nature. Clark said the separation of the Rainbow division could be announced on March 4 when RCL reported its interim results.

Clark had expected a split or separate listing since RCL hired former Country Bird Holdings CEO Marthinus Stander from December 2020 to take over the poultry business.

RCL’s share price gained 2.37% to R9.52 on Tuesday, giving it a market cap of R8.5bn, and bringing its gain for the year so far to about 12%.