Poultry producer Astral Foods has cut its interim dividend by more than half after higher costs and lower selling prices dented profits.
“Feed price and production cost increases could not be recovered by increasing sales realisations due to the consumer market not being able to absorb price increases,” Astral said.
The company said on Monday it will pay an interim dividend of R4.75 a share, versus R10 a year before.
While revenues in the six months to end-March edged up 3% to R6.8bn, higher sales costs and distribution expenses caused headline earnings to fall 52% to R368m, Astral said.
The group said poultry imports remain high, equating to about 38% of local production, or an average of 41,771 tons a month.
“Higher local poultry production levels together with imports from Brazil and the US will negatively impact the supply and demand balance in the short term,” it said.
Astral, led by CEO Chris Schutte, said its near-term prospects “can be regarded as a mixed bag”.
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Raw material price increases and SA’s new minimum wage will add to costs, while trading conditions tend to be worse in the second half and high fuel prices and unemployment will dent demand.
Municipal infrastructure has also deteriorated in Standerton, “leading to water supply interruptions at a cost to the business”.
But the outlook for maize prices and stocks have improved, Astral said.
Independent analyst Anthony Clark said Astral’s lower profits were not surprising considering higher and more volatile maize prices.
“I'm forecasting that Astral has a much weaker second half, as the winter months tend to be a poorer trading season," he said, adding that the group’s shares may be overvalued considering its near-term prospects. The stock [rose 0.7% to R188.45 on Monday].
“The next six to nine months will be very challenging. The current bravado that swine flu in China will boost domestic chicken prices is a fallacy,” Clark said.
However, Clark said SA’s poultry sector could benefit from better maize harvests and falling international soy prices, both of which would reduce feed costs.
“The yellow maize price and the soy price are both retreating quite nicely, so moving into 2020, Astral could have much lower input costs, aiding an earnings recovery.”
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