KARACHI: Engro Foods posted a net profit of Rs2.4 billion for 2016, down 25 per cent from Rs3.2bn a year ago.
In the fourth quarter (Oct-Dec) alone, the company recorded a loss of Rs208 million against earnings of Rs635m in the comparable three-month period a year ago, according to a stock notice on Friday.
The company paid out an unexpected, and first-ever, cash dividend of Rs10 per share, including a one-time special dividend of Rs9 per share. Market watchers said the company’s earnings were lower than the street estimate, but the one-time special dividend came as a positive surprise.
Earnings for Oct-Dec were down primarily on the back of lower revenues. This will have an after-tax earnings impact of Rs4.60 per share on Engro Corporation, which holds 36pc shares in its food subsidiary.
“We attribute the decline in revenue to a heated competition in the dairy segment owing to the entrance of new players (Dostea, CupShup etc), especially in the tea-whitening category, which has affected the sale of Engro Foods’ largest dairy brand Tarang,” according to Topline Securities.
Analysts also pointed out that the Supreme Court had conducted legal proceedings against some packaged milk brands in September last year after they were found unfit for consumption.
Although Engro Foods’ products were not on the list, the case proceedings could have affected consumer behaviour towards packaged milk, thereby putting pressure on sales.
However, Topline Securities said it was still awaiting clarity from the company’s management in this regard.
Another reason that contributed to the decline in earnings in Oct-Dec was a 21pc year-on-year increase in distribution charges. The increase was attributed to Engro Foods’ aggressive advertisement and marketing during the period to promote its Tarang brand.
Referring to the company’s recent acquisition by a foreign entity, AKD Securities Deputy Head of Research Zoya Ahmed said the period in transition is likely to witness a slower rise in profits, with five-year forward earnings growth rate of 13pc versus 78pc recorded in the last five years.
courtesy : dawn news