A contrast between the old and the new in food was provided yesterday by the quarterly results of food manufacturer Goodman Fielder (GFF) (old and the poor result ) and Domino’s Pizza (DMP) (new and getting more mobile and online and good outcome). The market reactions to the results and commentaries tell the story – Goodman Fielder down, Domino’s up to a new all time high.
Goodman Fielder has forecast a significant earnings improvement in the second half after record milk and rising wheat prices and one off items pushed the food group to a surprise interim loss of $64.8 million loss.
But after shocking the market with a loss, the shares sold off and the confident outlook wasn’t enough to halt the slide.
Goodman shares lost 7.3% to end the day on 63c.
But despite the loss, a token interim dividend of one cent will be paid, compared to nothing a year ago. The gesture wasn’t appreciated by the market.
The shares were down 8% at one stage yesterday.
GFF 1Y – Goodman Fielder posts weak result
The loss was due to one off factors in the half year that weren’t there a year ago.
Pre-tax significant Items totalled $112.8 million, comprising restructure costs ($15.5m) and impairments associated with business divestments ($97.3m). That compares with significant items in the same half year of the previous year of just $900,000.
Despite the negative one off factors, the company’s trading performance wasn’t too hot either and that’s what investors were concerned about.
Underlying earnings before interest and tax fell 8% to $77.2 million from $84 million as marghins were cut by higher costs.
And despite the upbeat outlook, the company did warn that rising agricultural commodity prices and tough trading conditions remain challenging.
The first half loss compared with a $34.5 million profit in the December half of the 2012-13 year.
The loss was struck on a 5% rise in group revenue to $1.13 billion for the half, boosted by the improved pricing in baking and dairy products and currency benefits from the strong New Zealand dollar.
CEO Chris Delaney said in yesterday’s statement that, “At a fundamental level, we are starting to see the benefits of our strategy reflected in revenue growth and gross margin improvement as we continue to invest behind our power brands.
“However, we had to deal with the impact of rising commodity costs which, as we had previously advised, has impacted earnings in the six month period. That was particularly evident in our New Zealand Dairy business where the farmgate milk price increased to a record level and due to aggressive competitor pricing, we were unable to recover all of that increase through pricing.
“In our Australian Baking business, despite an improved performance, including increased revenue and earnings, we were impacted by the continuing high A$ wheat price and increased freight and transport costs to ensure we continue to deliver fresh product to our customers while we invested to upgrade our manufacturing facilities.
“Meanwhile earnings in our Australian Grocery division were lower than expected due to new product development in Spreads not being successfully ranged across all retailers.
"While the near term outlook remains challenging, due to the continued pressure of high commodity costs (raw milk and A$ wheat prices), Goodman Fielder expects earnings in the second half of the year to increase significantly on the first half.
“We had previously indicated that earnings in FY14 would be significantly weighted towards the second half and that remains the case,” said Mr Delaney.
