Caribbean Cream outlook.
Caribbean Creams strategy of going for market share seems to be paying off with strong rise in revenues in the third quarter but at a steep cost with profits falling sharply in the quarter.
Profit at the sole producer of ice cream listed on the Junior Market of the Jamaica Stock Exchange was disappointing as shown by their latest quarterly report recently. The disappointment is not due to under performance of the company though but from what appears to a strategy to boost market share.
Profit slid 97 percent to just $653,000 in the November quarter, from $19 million in the similar period in 2016. For the nine months to November, profit slid 48 percent to $71 million from $137 million in 2016.
Input cost has risen sharply during the period but management strategy seems clear go for market share by keeping prices stable and low and revenues will eventually deliver bottom line gains.
Revenues climbed 18 percent for the quarter, to $319 million from $271 million in 2016 and rose at a slower 12 percent to $992 million from $886 million in 2016 for the nine month period.
Profit margin, declined for both the quarter and year to date period, in the November quarter to 27 percent from 33 percent in the 2016 and for the nine months to 31 percent from 39 percent in the 2016 period, as input cost climbed 29 percent in the quarter, compared to 27 percent for the year to date period. The effect, gross operating profit declined just 4 percent in the quarter to $85 million from $89 million and fell 11 percent for the year to date, to $305 million from $344 billion in 2016.
Direct operating cost was not the only area to experience steep cost rise. Administrative expenses rose 25 percent to $68 million in the quarter and increased by 15 percent in the nine months to $193 million. Finance cost jumped 58 percent in the quarter, to $6 million over 2016 and 41 percent from $8.7 million to $12 million for the nine months period.
Earnings per share came out at 19 cents for the nine months and is expected to rise with the important final quarter covering the Christmas period to impact revenues.
Gross cash flow brought in $130 million but addition to fixed assets, loan payments and paying $23 million dividends, brought cash funds at November, to $145 million. At the end of November, shareholders’ equity stood at $640 million with borrowings at just $86 million. Net current assets ended the period at $214 million well over Payables of $77 million. Amounts invested in inventories dropped from $161 million at the end of February to $96 million.
The stock traded at $5.70 on the Junior Market of the Jamaica Stock Exchange with a PE ratio of 10 times estimated 2018 earnings and with IC Insider.com forecasting 80 cents per share for PE of 7.5 times earnings.
