2 out of 3 Korean food companies to post improved Q1 OP on price hikes

[Photo by MK DB]

Two out of three food companies in South Korea saw their operating profits increase in the first quarter from a year ago as they raised food prices despite the government’s pressure to minimize the hikes.

According to an analysis conducted by financial market tracker FnGuide Inc. on the brokerage consensus of the first-quarter earnings of food-related listed companies upon request by Maeil Business Newspaper on Monday, 10 out of 15 companies saw their operating profits increase from the previous year.

The average operating margin stood at 5.5 percent in the January-March period, remaining at a similar level of 6.1 percent in the same period a year ago.

Food companies had been logging complaints that they were facing the risk of suffering losses due to a surge in raw materials prices but figures showed that a majority of them were less exposed as they raised product prices.

Food companies saw profits rather increase as raw materials prices have stabilized since the second half of last year.

Wheat future prices, in particular, which had caused the largest headache for food companies, fell 43 percent to $6.15 per bushel, equivalent to 27.2 kilograms, on Thursday on the U.S. Chicago Mercantile Exchange (CME) from $10.8 a year ago.

Wheat prices are currently lower than the level before global grain prices skyrocketed following Russia’s invasion of Ukraine in February last year. Prices of other major grains such as corn and soybeans have also declined from a year ago by 23.1 percent and 17.4 percent each.

Food companies usually procure 3 to 6 months-worth of raw materials such as wheat, corn, and soybeans in advance, but most of the raw materials purchased during the price surge in the first half of last year have been mostly exhausted at the end of last year, according to sources.

“Now that the rise in raw material prices, which had been the reason for food companies’ hike in prices, has eased, food companies need to cut prices actively to lessen the burden on consumers,” said an unnamed official from the Korea National Council of Consumers Organizations.

Binggrae Co., a local confectionary giant, is estimated to post 2.7 billion won ($2 million) in its first-quarter operating profit, up 70 percent from a year ago. Its profit is likely to have surged as it raised the prices of its flagship products by 10 to 20 percent, such as those of ice creams and banana-flavored milk last year.

Major ramyeon makers such as Nongshim Co. and Samyang Foods Co. are expected to see their first-quarter operating profit increase up to 30 percent from a year earlier.

Analysts note that this rise in earnings is attributed to their ramyeon price hike of 10 percent in August and September last year and a steady increase in overseas sales coupled with the strong dollar.

Dongwon F&B Co., which raised the price of its flagship product Dongwon Tuna Light Standard 135 grams 8.7 percent to 2,880 won from 2,650 won in December last year, is also expected to see its operating profit increase by more than 15 percent during the same period.

SPC Samlip Co., which has raised the price of its major bakery products by an average of 12.9 percent since February, is also expected to see its first-quarter operating profit increase by more than 10 percent from a year earlier.