Honey Bun’s profit falters

Honey Bun’s last quarter profit got burnt with a $10.5 million loss compared to a small profit of $490,000 for the same period in 2012.

For the full year to August this year, profit fell from $41.5 million to $35.3 million with sales revenues climbing to $712 million from $611 million in 2012. For the quarter, sales rose from $154 million to $163 million hardly enough to cover increased cost. Rising cost and inability to price the products to recover increases in expenses is at the heart of Honey Bun’s 2013 problems that lead to lower profits. For while revenues climbed 14.8 percent for the year, direct cost climbed even faster at 18.8 percent. The increased cost meant $28 million of potential profit just evaporated as a result of not being able to pass on the full cost to customers. Compounding the problem, administrative and other cost rose much faster than revenues by 20 percent to $174 million and selling and distribution cost was contained to an increase of only 8 percent to $90 million. Finance cost at $2.9 million was almost flat.

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The company may be able to recover some, if not all of the cost increase, during the coming year. Movement in the local currency which would have had a major impact on cost in the 2013 fiscal year should moderate going forward and with signs of stability in the economy and some green shoots of growth showing, the next twelve months should be better for them.

IC Insider is forecasting earnings of $39 million or 42 cents per share for 2014 and 65 cents per share in 2015.

Historical | Gross profit for 2013 increased by 9.7 percent and is the lowest since 2008 when it grew by 12 percent. The gross profit margin for the latest year is not the worst; it is only 2 percentage points below 2011 and well above 66 percent in 2010 and is in line with 2006 and 2007. Profit performance has been less than predictable. In 2007, pretax profit came out at $23 million and decreased to $18.7 million generated in 2008, climbed to $45 million in 2009 but fell to $26 million in 2010 with 2011 enjoying an increase to $37 million; then it was up to $42 million in 2012 only to fall back in 2013.

Finances | Notwithstanding the lowered profited out turn, the company’s finances improved during the year. Shareholders equity improved by $20 million to reach $291 million and borrowed funds was $26 million up from $20 million in 2012. Net working capital increased from $61 million to $98 with cash and bank balances reaching $78 million. Receivables climbed by 40 percent to $78 million and payables by 87 percent to $75 million.

IC Insider outlook | The stock is priced at $3 with a PE of 8 times earnings and is in line with a number of other junior market companies. At best, Honey Bun is currently a stock to watch. It will need increased sales volume to make it to our Buy Rated stock list when compared to others with a better potential for gains.