Almarai posts record high Q3 profit on margin expansion, says NCB Cap

Almarai’s record higher Q3 2017 net profit of SAR 667 million came 8 percent above NCB Capital's estimate of SAR 618 million and the consensus forecasts of SAR 598 million.

“We believe the better than expected results are mainly attributed to strong margin expansion from lower commodity prices and Opex efficiencies,” NCB Capital said in an earnings review on Sunday.

Revenue declined 4.5 percent year-on-year (YoY0 to SAR 3.37 billion, in line with the brokerage firm’s estimate of SAR 3.48 billion.

The lower sales are attributed to a weakness in the dairy and juice as well as bakery business due to seasonal factors, weak demand for discretionary dairy products, in addition to the Egyptian currency depreciation.

The third-quarter gross margins – the highest since Q3 2009 – increased by 287 basis points to 44.9 percent, ahead of NCB Capital's estimate of 44.2 percent.

“We believe this margin expansion is attributed to favorable commodity prices and effective cost management, which offset the impact of increased alfalfa costs,” the brokerage firm added.

A key positive from the results is the break-even of the poultry segment, slightly earlier than the year-end target. However, Almarai’s earnings are likely to be impacted by lower profit from the other segments going forward.

NCB Capital recommended a “neutral” on the stock, with a target price of SAR 42.2.