Saudi dairy lifts profit but misses forecasts

First-quarter net profit at Almarai, the Saudi Arabian dairy producer, rose 5.4 per cent from a year earlier.

Almarai, the Saudi Arabian dairy producer, said net profit in the first three months of the year rose 5.4 per cent from a year earlier after the poultry division led stronger sales across all businesses.

However, the company failed to meet analysts' forecasts after higher costs associated with IDJ, the juice and drinks unit it operates with PepsiCo, bit into earnings. The company provided a breakdown of what those costs were in the report it released yesterday to the Saudi stock exchange.

Net profit in the three months to March 31 was 255.1 million Saudi riyals (Dh249.8m). Sales in the quarter rose 18.2 per cent to 2.4 billion riyals.

The consensus estimate of 10 analysts was for a net profit of 292.9m riyals and sales of 2.6bn riyals.

"We had a meeting with the company in January and it seems like the low utilisation of the plant is putting pressure on the market and driving costs up," said Ahmed Korayem, a research analyst at Riyad Capital.

"They are still going through a reshuffle in the company and that has delayed bringing the company to the right track. We will know more after the analysts' conference call with the company." Riyad Capital has a "sell" recommendation on the stock.

First-quarter earnings dropped 30.9 per cent from 369m riyals from the previous quarter. Almarai attribute this to "consumption seasonality".

NCB Capital said it was disappointed to see margin pressure across all lines.

"We were expecting some margin stability off the back of lower food prices from [the second quarter of last year] coming through," NCB said.

Almarai, which has a 44 per cent share of the Arabian Gulf's dairy market, has invested US$3 billion (Dh11.01bn) since 2007 to diversify its product lines to include chicken, juice, baby food and other goods.

The revenue of the company, based in Riyadh and founded in 1977, has almost tripled in the past five years to 7.95bn riyals as demand for its products - milk, cheese, processed chicken, baked goods and juices - has surged with the nation's population.

Although its shares fell 1.5 per cent to 65.5 riyals yesterday, the stock has almost doubled since its 2005 initial public offering. Prince Sultan bin Mohammed bin Saud Al Kabeer is Almarai's founder and largest individual shareholder. He has a 28.6 per cent stake in the operation.

"Overall, the company is satisfied with the growth indicators, business development expansion and operating performance in the quarter," the company said.

* with Dow Jones