Almarai’s Q3 broadly in line with estimates: NCBC

Saudi dairy producer Almarai reported a net income of SAR 635 million for Q3 2018, broadly in line with NCB Capital and consensus estimates of SAR 602 million and SAR 642 million, respectively.

"With sales being flat year-on-year (YoY), we believe the YoY decline in earnings is due to gross margins contracting by 186 basis points to 43.1 percent," the brokerage said an earnings note.

Sales were flat YoY at SAR 3.4 billion, but 7.7 percent higher than NCB's estimate of SAR 3.1 billion due to a better-than-expected performance in the bakery segment.

Total sales in Saudi Arabia were down 2 percent YoY, while GCC and others reported a growth of 4.6 percent and 2.8 percent YoY, respectively.

"We believe the increase in product prices by 3 to 6 percent for various dairy products in July 2018 supported sales. However, it was offset by the impact of expat departure and weakness in demand for relatively discretionary products."

Gross margins contracted to 43.1 percent, but were in line with NCB's estimate of 44 percent.

Poultry performance continued to improve, with the division reporting a YoY profit of SAR 51.5 million in Q3 2018 against a loss of SAR 6.6mn.

NCB Capital recommended a “neutral” rating on the stock, setting the target price at SAR 53.20.

"We believe key positives are improvement in the performance of poultry operations, production efficiencies and cost optimization initiatives. However, weak sales in the dairy and juice segments are a cause of concern," the brokerage noted.