Costa share price grows on fruitful first-half results

Here's how the horticulture company's interim first-half results stack up.

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Key points

  • Costa has reported its half-year FY22 results 
  • Revenue and earnings grew double digits while profit was flat
  • Interim dividend of 4 cents per share, in line with the prior period

The Costa Group Holdings Ltd (ASX: CGC) share price is ripening this morning after the horticulture company delivered its half-year FY22 results.

Despite creeping lower when the market opened, the Costa share price is climbing 0.3% at the time of writing to $2.75.

Green shoots for the Costa share price as earnings grow

Here's a high-level summary of Costa's results for the half year ending 3 July 2022:

  • Revenue came in at $708.7 million – up 16% compared to the prior corresponding period (pcp) of 1H21
  • EBITDA before movement in biological assets and material items grew 13% on the pcp to $140.1 million
  • Statutory net profit after tax (NPAT) edged 1% higher to $37.8 million
  • Net debt stands at $328.2 million with leverage of 1.94x
  • A fully franked interim dividend of 4 cents was declared

What else happened in FY22?

Costa's performance in China was a standout, growing revenue by 34% as new plantings drove volume growth of 32%.

The company said this result reflected strong quality, demand, and higher pricing before major city COVID-19 lockdowns toward the end of the season.

Volumes in Morocco trickled 4% higher but revenue retreated by 16% on the back of delayed timing due to weather.

Back home, berry volumes increased by 10%, while revenue lifted by 12%. As you might have guessed from rising prices on the supermarket shelves, pricing was strong across all four berry types. The average sale price for premium berries jumped by 40%.

Turning our attention to tomatoes, the first crop from glasshouse 4 and the new nursery for the half led to a 38% rise in volume. Combined with positive pricing and demand, revenue grew by 28%.

The company's citrus portfolio recorded a 40% jump in revenue. However, this was helped by the acquisition of 2PH. As the season has progressed, weather events have been impacting quality, volume, and pack-out rates across Costa's three citrus growing regions in South Australia, Victoria, and Queensland.

The company had previously flagged this in a trading update in July, which sent the Costa share price reeling.

Finally, the company's avocado category was impacted by a prolonged Western Australian crop and the lack of further export market access. Revenue went backwards by 16%.

Costa noted that the Australian and Japanese governments continue negotiating market access for avocados grown on the eastern seaboard.

What did management say?

CEO Sean Hallahan was pleased with the company's first-half performance, saying:

Our long term growth strategy has come to the fore in the current uncertain economic environment, including our high quality of asset base, the scope and range of our protected cropping footprint, the successful deployment of new varieties which attract a price premium, a diversified portfolio and our market leading positions in high demand categories.

What's next?

Looking ahead, here's the outlook for the company's core fruits and vegetables:

  • Citrus: Positive volumes are expected to continue in the second half, but the extent of the impact of extreme weather conditions won't be known until later in the season
  • Domestic berry: Quality of early season protected berries is strong with season volume forecast in line with expectations
  • Mushroom/Tomato: On a positive trajectory to perform favourably over the second half
  • Avocado: Current pricing conditions are improving, but industry conditions are expected to remain challenging for the remainder of the year.

Costa share price snapshot

Costa's share price performance has been a mixed bag so far this year. The Costa share price has outperformed the S&P/ASX 200 Index (ASX: XJO) over the last month, growing by 11%.

However, the Costa share price has dropped 12% since the start of the year, underperforming the market.

Costa shares are currently trading on a 12-month trailing dividend yield of 3.2%, which bumps up to 4.6% with the benefit of franking credits.

Motley Fool contributor Cathryn Goh has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended COSTA GRP FPO. 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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