Inghams Group Ltd announces profit growth of 28%

Inghams Group Ltd (ASX: ING) released its half year financial results today. Here are the highlights:

  • Poultry volumes of 255kt increased by 2.8%
  • Gross Profit was up by 6% to $243 million
  • Underlying EBITDA was up by 14.8% to 108.9 million
  • Cash from operations excluding interest and tax were 110.5% of EBITDA
  • Net Profit after tax increased by 28% to $65.7 million
  • A fully franked interim dividend of 9.5 cents per share was declared

Despite the decent results, Ingham shares were down 1.41% to $3.50 in early trade today. Inghams’ shares had spiked 4.5% earlier in the week and this was likely due to positive broker reports from Goldman Sachs who expected Inghams to release positive results.

Inghams has been undergoing a massive five year $200 million cost cutting exercise dubbed “Project Accelerate” and the success of the program is starting to show. Whilst revenue was fairly flat at $1,206 million, down 1.7% from the previous period, it was the decrease in costs that helped deliver better margins.

If you can’t increase revenue then you focus on costs and I think that management are pursuing the right strategy. Looking ahead, management expect energy and feed costs to continue increasing and this will need to be offset by improved operational efficiency or increasing product prices.

Overall, I wouldn’t be rushing in to buy Inghams shares for a number of reasons:

  • In my view, chicken consumption in Australia is a relatively mature market which is unlikely to experience extraordinary growth going forward
  • Inghams main distribution channel is via the supermarkets such as Woolworths Group Ltd (ASX: WOW) which are facing a tough competitive environment and will likely keep driving down supplier prices. Wesfarmers Ltd (ASX: WES) which owns Coles released its results this week and it was evident from the 14% decline in Coles earnings that supermarkets are competing hard to attracts customers through lower prices.

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Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned.

You can follow Kevin on Twitter @KevinGandiya.

The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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