Lotte Foods earnings likely benefited from sizzling hot summer

Lotte Foods Co., a food manufacturing unit of South Korea’s conglomerate Lotte Group is expected to post improved earnings this year thanks to rebound in sales of ice cream and processed food products.

Its sales took a hit last year from the Middle East Respiratory Syndrom (MERS) outbreak and the World Health Organization (WHO)’s announcement that processed meat such as bacon, ham and sausages can cause cancer. However its performance is expected to improve this year. According to Wisefn, a financial information provider, its operating profit for this year would amount to 84.8 billion won ($76 million), up 22.5 percent from last year’s 69.2 billion won. Sales are also expected to increase 4.1 percent on year to 1.77 trillion won.

Hyundai Securities Co. estimated that its operating profit for the July to September period would gain 9.1 percent and sales up 1.7 percent led by robust sales of ice cream products from this summer’s lengthy heat wave. Average selling price of consumer products also rose under new retail price labeling regulation. The food company also saved cost from a 10-percent fall in the price of processed pork.

To ride on the bourgeoning market for home meal replacements (HMR) amid rising single households, Lotte Foods and Lotte Mart launched a HMR brand Yorihada last year. Market analysts believe the brand has high growth potential thanks to Lotte’s widespread retail networks even if it is a latecomer to the market.

The company has also focused on coffee business after taking over the business from Lotte Chilsung Beverage Co. in 2014. It has been supplying coffee beans and machines to 7-Eleven convenience stores.

It has been exporting Pasteur powdered milk to China since 2007. “Our products have been growing by double digits every year in the Chinese market, and we aim to achieve 50 billion won in sales this year,” said an official from the company.

Its generous dividend payout is another factor that appeals to investors. It paid out 4,780 won per share and a total of 6.546 billion won in dividends last year, almost doubling from the previous year’s 3.424 billion won. Dividend propensity has risen from 1.80 percent in 2013 to 5.72 percent in 2014 and 13.02 percent in 2015. Dividend yield has also been on a steady rise from 0.2 percent in 2013 to 0.4 percent in 2014 and 0.5 percent in 2015.

There is a high potential for the dividend payouts to increase further as Lotte Group owners and affiliates hold a 50.16 percent of stake in the company, with Lotte Chilsung Beverage owning 9.33 percent, Lotte Confectionary 9.32 percent, Hotel Lotte 8.91 percent, Lotte Group Chairman Shin Dong-bin 1.96 percent and former vice chairman of Japan’s Lotte Holdings Shin Dong-ju 1.96 percent.

Lotte Foods’ price to earnings ratio (PER) is 18.58, relatively lower than that of other rivals such as Orion Corp. with 30.63, CJ Ceil Jedang with 28.03 and Ottogi Corp. with 24.47.

Lotte Foods shares closed Wednesday at 684,000 won, down 3,000 won or 0.44 percent from the previous session.

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