Periods of major economic adjustment negatively affecting consumers, can be tough for bakeries, as demand pressures tend to squeeze margins. That is exactly what happened to Consolidated Bakeries, better known as Purity, for the first six months of 2014.
For although sales’ revenues for the period to June 2014, grew 17.9 percent over the six months to June 2013, profit fell 19 percent to $14.7 million from $24.4 million in 2013. Profit, in the June quarter fell 28 percent to $7.3 million while sales’ revenues for the quarter rose 22 percent. During the six-months, Consolidated said, exports grew 25 percent in US dollars, over the same period last year.
According to management in their report to shareholders for the June results “revenue growth over the six month period in 2013, represent growth in all product categories. This growth is a result of our strategy to grow distribution and volume. During this period, price increases were low due to market competition and in a response to difficulties shoppers face.”
Gross profit| Gross profit margin that ended last fiscal year at 54 percent, fell to 44 percent in the March quarter, 47 percent for the June quarter and for the six months 46 percent. The decline was a major factor dragging profit down for 2014. For 2011, gross profit ended at 62 percent, leaving much room for improvement for management going forward.
Operating cost| comprising administrative, selling and distribution cost, rose sharply by 21 percent for the June quarter to $57 million and 15 percent for the six months, hitting $113 million, faster than the increase in gross profit.
The company has lots of work to do, to improve gross profit margin as well as the paltry return on equity of 6 percent for 2014.
Borrowed funds amount to $57 million at the end of June at a very comfortable level with equity at $518 million. Cash funds available amount to $111 million.
Property plant and equipment was increased by $17 million up to June 2014, additional machinery was ordered to build capacity.
Watch this one| The company has room to grow faster than the economy for a while, this can make it a good growth prospects for investors looking long term. IC Insider’s forecast for earnings per share is around 15 cents for 2014. It may not be until 2015 that the earnings could show improvement to help push the stock price upwards in a major way.