Inghams (ASX:ING), a major Australian chicken producer, experienced a significant share price drop on Friday despite reporting a substantial increase in full-year profits. While the reported results were slightly below market expectations, the market's reaction seemed excessive.
The company reported a net profit after tax of $101.5 million, up 68% year-on-year. However, this was below market estimates of around $108.5 million. EBITDA increased by 12.6% to $471.1 million, driven by a 2.8% increase in poultry sales volumes and a 5.4% rise in net selling prices.
While the dividend of 20 cents per share was up from 14.5 cents last year, a reduction in the final dividend to 8 cents from 10 cents caused concern among investors and analysts.
Inghams' outlook for poultry volumes was less optimistic, with growth expected to slow to a range of 1% to 3% in the coming year. This, combined with the company's attempts to explain the weaker outlook, raised questions. Given the current economic climate and consumers' focus on value, a decline in chicken sales was unexpected.
The estimated underlying EBITDA for FY25 of $236 million to $250 million represents a flat to 6% growth, significantly lower than the 12% growth achieved in the previous year. The company attributed this to a new supply agreement with Woolworths, which involves a phased reduction in annual volumes.
Inghams acknowledged that securing new business from other customers would be necessary to offset the impact of the Woolworths agreement. However, the company's guidance suggests that the overall impact of these changes will be significant.
To mitigate the effects of inflation, Inghams is implementing cost-saving measures such as smarter procurement and operational improvements.
While the company's CEO, Andrew Reeves, highlighted the positive factors supporting the poultry sector, the new supply agreement with Woolworths raises concerns about potential price gouging. It remains to be seen whether Woolworths will prioritise maintaining low chicken prices for consumers or maximizing its profit margins.
