Western Cape-based poultry group Quantum Foods has flagged a fall in headline profit in at least one quarter of its 2021 year, hit by an outbreak of avian influenza, aggressive competition and rising feed costs.
Headline earnings per share, a widely used profit measure that excludes certain one-off items, is expected to fall between 27% and 42% in the year ending September, a profit cut of up to R65m for a group valued at R1.17bn on the JSE.
Food producers have been struggling to pass on the rising dollar-based costs of soft commodities, including maize and soya meal used in animal feed, which have enjoyed huge demand in China. Feed makes up nearly three-quarters of the cost of producing chickens and eggs.
Quantum Foods outlined a litany of issues in its trading update on Thursday, as well as another loss for its egg business, while price increases for livestock sales were not enough to offset rising feed costs. SA also grappled with an outbreak of the highly pathogenic avian influenza in April and May.
The group experienced an avian flu outbreak at its Fransrug layer rearing farm in the Western Cape and lost around 84,000 hens in May at a direct cost of R5m.
The outbreak had indirect effects as well, interrupting the export of livestock to neighbouring countries, but the substantial reduction of the layer flock in SA supported higher egg selling prices and improved earnings during its second half, although not by enough to offset a first-half loss.
Earnings derived from the commercial broiler farming business were hit by customers requiring a smaller and lighter product given the continued economic pressures on end customers, Quantum said. That resulted in a lower total weight being sold to abattoir customers and, consequently, decreased margins.
Fellow poultry producer Astral Foods has warned of a profit dip for its year to end-September, saying in that month that headline earnings per share should fall by no more than 25%, implying a drop in profit of less than R140m.
In afternoon trade on Thursday, Quantum’s shares were unchanged at R5.87, having fallen 8.3% so far in 2021 but rising 43% since the start of 2020, surging in July of that year amid takeover interest by unlisted peer Country Bird, although this did not materialise.
Update: October 21 2021
This article has been updated with additional information.
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