In a sign of continuing struggle amid declining margins, Engro Foods reported a net loss in the third quarter of 2014, according to the company’s latest financial results. However, the local giant showed significant improvement in its volumes.
The company reported an after-tax profit of Rs 252 million or Rs 0.33 per share during the nine-month period ending on September 30, 2014, down by 80% when compared with Rs 1.2 billion or Rs 1.62 per share it earned in the corresponding period previous year.
The company reported a loss of Rs 77 million or Rs 0.10 per share in the third quarter of 2014, compared to a net profit of Rs 128 million or Rs 0.17 per share in the corresponding period of 2013.
The decline in profit was mainly due to the loss incurred on its North American business, according to a report by Topline Securities.
Giving background of the deal, the report said in September this year, Engro Foods Netherlands BV – a fully-owned subsidiary of Engro Foods – entered into a share purchase agreement for the sale of its North American business, which included Engro Foods Canada Limited.
The company, however, did well in terms of volumetric growth especially because it had been struggling to grow its volumes since 2012, when it started facing problems in its distribution network.
Engro Foods’ sales for the nine-month period grew by 10% to Rs31 billion compared to Rs28 billion in the corresponding period of 2013. On quarterly basis, the company’s net sales increased by 19% to Rs11 billion compared to Rs9 billion of the comparable period of last year.
The gross margins dipped to 18.5% in the January-September period, down from 24.6% in in the nine-month period of 2013, according to the report. As a result, operating margins declined by 437 basis points to 4% in the review period compared to 8% in corresponding period of the last year. “Other than that, 62% higher finance cost and a one-time loss on sale of foreign business resulted in 80% fall in profits,” it said.
The declining margin has been an issue for Engro Foods, which was also acknowledged by the company’s chief Sarfaraz Rehman in a previous interview. He said that they could not increase prices abruptly because of the market’s competitive nature and that it would take them a while before they could address the problem.
However, the declining margins may not be the only issue as the company has yet to regain the market it lost to competition during the last couple of years.
“Nestle is still giving a tough time to Engro Foods,” said Sajjad Hussain of BMA Capital.
“The market share it [Engro Foods] lost because of distribution malfunction was gained by Nestle.”
