Big Carib Cream’s profit hike

Caribbean Cream may not have officially landed the 60 cents per shares that IC Insider forecasted last year, following release of their 2015 full year results. That was due to two main factors, one is the writing down of assets amounting to $31.4 million and exceptional cost incurred, with waste water disposal which IC Insider estimates cost around $80 million during the year.
The 2016 profit of 40 cents per share is coming from just 15 cents per share for 2015 following the writing off of assets amounting to $31.4 million, the equivalent of 8 cents per share. The company that produces the Kremi brand of ice cream for the local market, delivered profit 0f $151 million for the year an increase from only $56.77 million for 2015 and from sales revenues that were up 12 percent to $1.13 billion compared to $1 billion in 2015. Importantly, final quarter revenues climbed 16.57 percent to $317 million, from $272 million, an acceleration from sales in the November quarter that grew 9 percent to $258 million.
The growth in revenues is “due to our ongoing aggressive sales, marketing and promotional efforts. We continue to expand our wholesale and retail segments” the company stated in a release accompanying the financials.
The improved results flowed from what IC Insider stated towards the commencement of 2015, “going forward the benefits of installation of the blast freezer will be reflected for the full year, while it only partially impacted the last quarter of the just concluded 2015 fiscal year. They increased prices around 15 percent ahead of the Christmas period and may have seen some cut back in volume in the quarter as a result. They should be able to recover volumes going forward and even expand on it as the shock effect of the price increase wears off and more retail outlets are added.”
“Importantly, electricity cost will fall from two standpoints one is the lower electricity cost around 20 percent from the peak last year (2015 fiscal) and lower cost due to the faster freezing of ice cream thus using less energy. The cost of milk powder is down quite sharply as well. Going forward, the margin should improve even more with the blast freezer installed in November, which management says will reduce utility cost and create capacity for greater production to enhance sales volume.”
Based on the recently released 2016 results, the company benefited from the above developments.
For the 2016 fiscal year, gross profit jumped by 62 percent over the 2015 full year’s performance and 72 percent for the fourth quarter. For the 2016 fiscal year, gross profit margin climbed to 40 percent in the last quarter, from 27 percent in the 2015 period, for the full year, the margin jumped to 39.67 percent compared to 27.2 percent for the 2015 period.
Administrative cost excluding the onetime asset write off, rose 29 percent to $210 million for the full year and by 78.7 percent to $58.2 million for the quarter. The last quarter reflects moderate increase in marketing cost from $6.4 million in 2015 to $7.6 million and $42.75 million for the full year versus $38 million in 2015. Finance cost in the quarter declined from $10.6 million in the prior year, to $4 million and to $17.76 million from $27 million in the prior year.
Borrowings declined from $155 million to $125 million and will result in reduced interest cost in the year ahead.
Kremi generated gross cash flows of $230 million for the year compared to $97 million and ended with cash funds of $153 million up from just $2 million in 2015. Equity capital at year-end amounted to $437 million.
Cash flows for 2017 fiscal year should be in the order of $436 million if the projected earnings of $1 per share are met. These numbers suggest that the payments of a dividend cannot be far off. The environment is looking positive for increased sales with the planned tax break for a large number of workers that will increase spending and expected pickup in economic growth.
The stock last traded on the junior market of the Jamaica Stock Exchange at $4.02 for a PE of 8.4 based ongoing profit for the fiscal year to February, or 4 times 2017 estimated earnings and compares with 12 times 2015 earnings for the junior market and 9.5 times estimated 2016 earnings for the top half of the market.