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Inghams share price crashes despite lifting profits in FY19

chicken

The Inghams Group Ltd (ASX: ING) share price has crashed 19.8% lower to a 52-week low of $3.24 this morning after the company reported FY19 earnings.  

How did Inghams perform?

The highlight from Inghams FY19 report was a reported NPAT of $126.2 million, a 10.1% increase from the prior corresponding period. Other highlights from the company’s full-year report included;

  • NPAT of 126.2 million, an increase of 10.1%
  • Underlying Gross Profit of $480.2 million, up 3.0%
  • EBITDA of $242.2 million, an increase of 14.2%
  • Underlying EBITDA of $208.6 million, up 2.9%
  • 3% increase in Core Poultry volume
  • Underlying Earnings per Share (EPS) decline 2.1% to 27.8 cents per share

Inghams also declared a final dividend of 10.5 cents per share.

What has driven growth?

Despite operating in a challenging environment, Inghams saw strong core volumes drive growth for FY19. The company’s Australian operations saw growth in core poultry volumes offset historically high feed costs. Australian growth was fuelled by solid retail and wholesale performance and stronger than expected QSR demand.

Inghams saw volumes at its New Zealand operations remain in line with the prior year, with the company facing oversupply and growing cost pressures in the region.

Inghams Group Managing Director Mr. Jim Leighton said: “the results are solid despite growing cost pressures and New Zealand headwinds, as we continue to see strong demand for Inghams quality products across all channels”.

The challenging environment was reflected in the company’s Further Procession optimisation project not delivering to its plan. Inghams noted that unexpected demand resulted in increased costs, reflecting margin pressures.

Inghams also announced that a new strategic and operational plan will be presented to the market on 22 October 2019.

Outlook for Inghams

The poultry producer expects continued demand from consumers who are attracted to the affordability and value of chicken as a healthy source of protein. Inghams also predict that outlook for FY20 will be impacted by current feed costs which are at historic highs and dependant on domestic grain harvests.

Due to higher input costs, the company believes that Australian margins will be negatively impacted. In addition, higher costs of the company’s Further Processing project will have a financial impact on margins in FY2020.

Inghams expects EBITDA in FY20 to be below underlying FY19, with a return to growth expected in FY21. The company will maintain its current dividend policy, with a target payout ratio of 60% – 70% of underlying NPAT.

Inghams continues to be one of the most shorted stocks on the ASX, with a 19.5% short interest.

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Returns as of 6th October 2020

Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

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