Almarai Q1 profit in-line with estimate, says NCB Capital

Saudi dairy producer Almarai’s Q1 2018 net profit of SAR 344 million matched NCB Capital's forecast of SAR 337 million, but exceeded the consensus estimates of SAR 308 million, the Saudi-based brokerage firm said in an earnings review.

"We believe this is attributed to strong expansion in gross margins, poultry segment improvement, and better performance in arable operations in North and South America," the report said.

Almarai's sales came in at SAR 3.2 billion, missing the brokerage’s estimate of SAR 3.34 billion.

"We believe the decline in sales is mainly due to the weakness in discretionary spending and lower basket size as a result of the introduction of economic reforms such as the VAT and expat levy, which led to decline in relatively premium products such as jar cheese, gishta and cheese," the report said.

Gross profits increased 6.4 percent year-on-year (YoY) to SAR1.25 billion, backed by the firm's cost optimization initiatives and stable commodity prices. However, operating expenses rose to SAR 772 million, due to 12 percent YoY increase in G&A and other expenses.

Poultry business reported earnings before interest and taxes (EBIT) of SAR 30 million, supported by better market conditions and improving mortality rates. Besides, the infant nutrition business EBIT break-even in Q1 was a key positive, NCB Capital said.

The brokerage maintained its "neutral" rating on the stock, setting the target price of SAR 42.2.