Salada Foods, producers of Mountain Peak instant coffee, reports lower profit in the June quarter, a continuation of lower profit in the March quarter versus the same periods last year. Profit came in at $42 million after tax for the latest quarter and $95.4 million year to date versus $52.49 million and $106.6 million respectively to June. Profit for the March quarter was $29.3 million, down from $35 million in 2012.
The lower profits for the March 2013 quarter occurred as sales were lower, emanating from price reductions in the quarter implemented to stimulate sales and market penetration as well as increased cost associated with the new brands being produced by Mountain Peak Ltd. The reduction resulted in sales in monetary terms for the quarter falling 15.6 percent to $141 million, a $26 million decline. Sales for the June quarter were down to $198 million compared to $246 million in 2012, off 21 percent and year to date, $491 million and $532 million in 2012, an 8 percent decline. The level of sales would have been expected to result in worse performance in profits, but better margins helped negate the effects of the fall off.
IC Insider has been reliably advised that the reduced sales is not an indication that demand by consumers have declined but it is more tied to excess inventory being held in the trade that is affecting demand directly from Salada. Translated, sales in the past was inflated to the extent that the trade was building up inventories and the needed adjustment is now taking place.
Expenses | Selling and Promotional expenses rose 29 percent to $15.6 million in the quarter and 24 percent to $29.6million. Administrative expenses rose 24 percent to $25.3 million in the quarter and 23 percent to $75.4 million for the six month.
The increase is attributed primarily with the commencement of operations for Mountain Peak Foods Ltd under which the acquired Roberts brands of processed condiments are being processed and marketed. In addition to this brand, the group is marketing under the Mountain Peak brand as well.
Finances | Salada is clearly very conservatively managed, as can be seen from some of the financial ratios. The company has a large current asset ratio of 9 to 1, well above accepted norms, with cash and investments of $207 million. There was no interest bearing debt on the books, and equity was a high $711 million.
The earnings for the year to September should exceed a $1.40 per share. This could mean that the stock may not have much room to climb in the current market environment. Interest ought to be focusing on 2014 when the new products being produced by the Mountain Peak boost sales and hopefully profit. There are limited supplies of the company’s stocks to trade, so anything is possible with the stock price if demand comes in for them.
Related Post | Salada’s stock price may be stuck
[…] 2012. Sales were up 27.5 percent in the December 2012 quarter and may have been a major reason why Salada suffered declines in sales thereafter, as the trade seemed to have stocked up on supplies, thus cannibalising sales in […]