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Australian Agricultural Company Ltd branded beef sales jump 38%: Should you buy?

Australia’s biggest beef and cattle producer, Australian Agricultural Company Ltd (ASX: AAC), today announced $115.5 million of branded beef sales for the half-year ended 30 September 2014, up 38% on the prior corresponding period.

Despite the top line growth of its largest grossing business, the group’s entire revenue fell $15.6 million to $150.9 million, as cattle sales plummeted 64%. Further, the company’s cost of sales increased to $156 million, from $120 million in the prior period.

AACo posted a net loss of $13.6 million after tax. However the magnitude of the loss does compare favourably to the prior period, when a loss of $31.6 million was recorded.

AACo is currently in a state of transformation and substantially reduced cattle sales were a conscious decision by management to take advantage of improved pasture conditions.

Although there are a number of negatives to be taken out of today’s announcement, shareholders have reason to be bullish on the long-term outlook for the company.

The group expects strong branded beef sales and robust live cattle sales from the Grassfed business.

Commenting on today’s result, Managing Director Jason Strong said, “AACo is better positioned to create and capture more value from the higher percentage of export branded beef sales.” He also acknowledged the work undertaken to make its processing facility in Darwin, Livingstone Beef, ready for full operations by March next year.

At full capacity the facility will be capable of processing 500 head of cattle per day. It is also expected to “play a crucial role in transitioning the company to a more stable business model with increased market opportunities.”

Buy, Hold, or Sell?

Although I’m not a buyer of AACo stock today, there is reason to be confident in the longer-term outlook for it and fellow ASX-listed agricultural companies such as Ruralco Holdings Ltd (ASX: RHL), Ridley Corporation Ltd (ASX: RIC), Bega Cheese Ltd (ASX: BGA) and Graincorp Ltd (ASX: GNC).

If Australia is set to become the ‘Food Bowl of Asia’ then they will benefit. Indeed, AACo commented on Australia’s trade agreement improvements in today’s results release by saying: “The company welcomes steps which provide increased market access for its products, be it live cattle or branded beef, and has been encouraged by the recent announcements of liberalised trade agreements with key markets such as Japan, South Korea and more recently China.”

Given their cyclicality, the trick for share market investors is picking up financially sound agricultural stocks when they’ve suffered losses on the back of non-structural difficulties. However, long-term investors must be prepared for volatile earnings results, inherent in the Australian farming industry.

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the companies mentioned. 

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