SOUTH AFRICA – The South African packaged goods company Pioneer Foods expects half year operating profit to increase 44% while headline earnings to go up 32% despite of a decline in revenue.
Sales volume increased, while some of its main brands recorded a higher market share, others remained fairly stable promising a better first-half performance than the previous year.
In 2017, despite of sustained focus on cost management and extraction of efficiencies, gross profit decreased 16% to US$217.8 million as a result of high costs of raw materials, pushing up the cost of goods sold by 10%.
Low performance was also contributed by unfavourable maize procurement position taken in 2016 owing to a prolonged drought season.
Maize procurement is expected to remain stable to ensure supply after a bumper harvest of corn forecast at 15.97 million metric tons in 2017.
The company expects adjusted headline earnings per share to rise by between 22% and 32% in the six months to End-March 2018.
Pioneer had said in its 2017 interim results statement that the “margin drag on maize” would cease from June 2017.
Earlier, a statement from the company said that the group turnover fell 2.8% to US$829.37 million, largely due to deflation in soft commodities maize, wheaten products and rice, but total volumes rose 4.3%.
“Improved sales volumes and the normalisation of the raw material procurement position resulted in a sound recovery in maize profitability, with White Star [maize meal brand] restoring its market share in a growing category,” the company said.
“This improvement was partially offset by a regression in the wheaten value chain performance, with flour and bread seeing margin compression in the face of weaker demand and a more competitive environment.”
Despite competition from known brands on the supermarket shelves that is, Tiger Brands and AVI, cereals, long-life fruit juice, accompaniments and baking aids performed well from a volume and operating profit point of view.
The statement said that margins in the international operations continued to be affected by the stronger rand
“Long-life fruit juice and dried fruit export volumes and margins recovered in line with expectation and posted an improvement on 2017 profitability,” the company said.