Jamaica Broilers is buy rated

IC Insider is projecting a doubling of earnings for the current year ending in April 2014 for Jamaica Broilers. We project profits to hit $2.22 billion, which translates to $1.85 per share, up from the $1.1 billion reported in its latest audited results.

The improvement is expected from restoration of the gross margin for the broiler and feed business to levels that preceded the 2013 fiscal year, as well as increased sales and margin in the ethanol segment from full production compared to only partial production for most of last year. The ethanol operation generated the bulk of the profit in the April quarter of $260 million on revenue of $500 million compared to only $74 million on revenues of $1.36 billion for the nine months to January this year. Just maintaining the profitability in this segment, assuming that the other areas hold up as well as they did in the last year, earnings would likely grow by about $750 million or a little more than 60 cents per share.

The 2013 profit resulted in earnings per share of 91 cents based on 1.2 billion shares issued and arose from a 12.5 percent increase in revenues to $26.7 billion. IC Insider is projecting revenues of $29.8 billion for 2014, representing 11.6 percent more than in 2013.

While the increased results for the full year may not seem impressive as seen by the lack of reaction in the stock market to the results, the final numbers reflect a major recovery from the end of January as profit was down for the nine months from $687 million to $562 million. The last quarter profit jumped by 114 percent suggesting that this trend could continue well into the new fiscal year and is in keeping with the above forecast.

Management’s Comments | In releasing the January results, the company management stated, “Gross profits were negatively impacted by increased US$ costs for corn and soya bean residue — our main feed ingredients. This, in addition to the depreciation in the value of the Jamaican currency, has resulted in continuing cost increases. Management felt constrained during this quarter from fully passing on these cost increases in selling price adjustments.

“Distribution and administrative costs reflect increases when compared to this quarter last year due to a number of unexpected items of expenditure. For much of this quarter our Co-Generation electricity operation was out of service. During this time over $50million in fixed costs were carried in administrative expenses while Jamaica Public Service invoices were charged to the Best Dressed Chicken Processing Plant. The Co-generation plant came back into service in mid-January. In addition, costs were incurred in relation to organizational strengthening and an assessment by the Tax Authorities, related to GCT deferred on imports.

The Ethanol Division maintained production under tolling contracts at 100% of capacity during this quarter. The segment result for this Division reflects a positive $81 million for the quarter; with the year-to-date result now showing $74million versus the negative $7 million at the end of the second quarter. Also, the build out in the Haiti operations is continuing with ever increasing sales of Haitian produced baby chicks, feed, layer birds, table eggs and processed chicken.”

Balance sheet | JBG was able to reduce the levels of inventories carried from sales to inventories of 7 times to 9 times, but it did not stop there, as inventories actually fell by $400 million, while at the same time, receivables climbed by $500 million at year end. The group took on more debt to fund asset acquisitions during the year as net debt climbed $1.38 billion to reach $5.49 billion but equity is up by $1.3 billion.

To read the full report Jamaica Broilers major profit gains, click here