The Inghams Group Ltd (ASX: ING) share price has been one of the worst performers on the ASX 200 on Thursday following the release of its half year results.
In afternoon trade the poultry producer’s shares are down a sizeable 8% to $4.04.
What happened in the first half?
For the six months ended December 31, Inghams delivered a 3% increase in core poultry volume to 207.5 kt. This led to the company posting a 2.9% increase in gross profit to $250.2 million.
However, due to a significant increase in feed costs, driven by the drought conditions in Australia, the company posted a 5.3% decline in underlying net profit after tax.
Whilst management has tried hard to offset these increases through internal initiatives, they have ultimately been passed through to the market.
Unfortunately, things aren’t expected to improve in the near term. Management has warned that it expects feed costs to remain high through to the start of the next domestic grain harvest in December.
Nevertheless, CEO Jim Leighton was pleased with the company’s performance during the half given the tough trading conditions.
Mr Leighton said: “It is very pleasing to see the progress we have made reflected in continued volume growth and improving earnings despite the significant increases of our feed costs. We will continue to focus on our engine room as we work on defining our 5 year strategic plan. H1 FY19 results reflect positively on our ability to deliver against commitments while at the same time further formalising our go forward plans for consistent profitable growth.”
Should you buy the dip?
Whilst I am a fan of Inghams, I don’t believe its shares are trading at an attractive level given the challenges that it faces.
For now, I intend to stay away from its shares until feed costs ease and will consider the shares of sellers of its poultry such as Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW) in the meantime.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET. 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 Scott Phillips.