Desnoes & Geddes is reporting improved results for the nine months to the end of March this year with profits after tax up 30% to $1,050 billion, however in the latest quarter, profits was down 18% to $243 million after tax. The company took a $152 million charge, in the third quarter for making workers redundant, flowing from the decision to transfer the sales and distribution of its products to Celebration Brands, a joint venture company with Pepsi. The company’s management indicates that the amount written off in the quarter is 50 percent of the total separation cost. Based on these numbers Investor’s Choice, a sister publication to ICInsider.com, is projecting 66 cents per share earnings for the year after the one off staff separation cost, but expect earnings to close in on $1 per share in the 2013/14 year as growth in sales and cost cutting improve profits.
Overseas production | The results reflect the decision last year to switch the production and sales of Red Stripe to the USA. Export sales are down as a result, but so is cost relating to exports. The difference is a plus for the bottom line for D&G. Marketing cost is one area of major savings as the company no longer picks up that cost in the USA market. Gross margin for local and exports climbed during the nine months period. Local sales grew to $2.67 billion up from $2.56 billion in 2012 and for exports it was $564 million in the current fiscal year versus $450 million, but exports earnings jumped to $530 million after marketing cost, a large improvement over $127 million reported in 2012. General selling and administration cost rose from $906 million to just $938 million for the 2013 period.
Local sales climbed 12 percent over the same period in 2012 and was driven by the launch of the new beer, Talawah, a stronger performing spirits portfolio and price increase, the company reported. Local marketing cost increased by $21 million primarily due increased spend to promote and televise Red Stripe Premier League football.
Financial position | The group is in a healthy financial position as the improved results have contributed to cash moving from $230 million in March 2012 to $1.964 billion, after paying $560 million in dividends in December last year. Current assets exceed current liabilities comfortably by almost two to one, borrowed funds were only $157 million.
D&G has in the past stuck to paying out around 80 percent of profits as dividends and if this policy is maintained then the upcoming dividend to be considered this week should be around 30-35 cents per share. With the present price being $4.15 the annual yield will be around 12 percent making the stock very attractive.
Stock outlook | Investor’s Choice’s analysis points to the prospect of potential good growth levels for this company, as the local economy as well those overseas, show improvements in the years ahead. The major risk to this company is any weakness in the economy and potential for government to impose addition taxes on the products. On the positive side, the company is dominant in the local market and is enjoying increased acceptance of the flagship product Red Stripe overseas.
