The Inghams Group Ltd (ASX: ING) share price has plunged 20% after the FY24 result was announced.
Inghams is one of the largest poultry businesses in Australia. It produced 476.4kt of core poultry volumes in FY24.
FY24 result
Here are some of the highlights from the 12 months to 29 June 2024:
- Group core poultry sales volume increased 2.8% year on year to 476.4kt
- Net selling price (NSP) grew by 5.4% to $6.28 per kg
- Revenue increased 7.2% to $3.3 billion
- EBITDA grew by 12.6% to $471.1 million
- Underlying EBITDA increased 30.8% to $240.1 million
- Underlying net profit after tax (NPAT) grew 31.3% to $109.2 million
- Reported NPAT jumped 68% to $101.5 million
- Total annual dividend per share of $0.20, up 37.9%
The company said the result was driven by higher core poultry volume and higher net selling prices implemented in FY23 and FY24.
Total costs increased by 6.2% – internal feed costs increased $10.1 million, and cost of sales increased $129.5 million because of growth in volume, general cost inflation and the effect of the conversion of a significant number of growing contracts from fixed to performance based variable contracts of $19 million, partially offset by efficiencies and an improvement in operational performance.
While inflation has moderated, higher cost growth was seen in wages, utilities, husbandry, ingredients and repairs and maintenance.
The business continues to invest in its network and automation, including buying the Bromley Park Hatcheries in New Zealand in October for NZ$4.5 million. In January 2024, a new distribution centre in Hazelmere in WA become operational, which is expected to provide significant operational efficiencies.
On 7 March 2024, the company announced the acquisition of the Bostock Brothers organic chicken business in New Zealand for $35.3 million.
It recently installed four new leg deboning machines, while four new waterjet cutters is “progressing well and remains on-track” for completion in FY25.
Woolworths supply agreement
Inghams said it has agreed the terms for the renewal of its multi-year supply agreement in Australia for Woolworths Group Ltd (ASX: WOW). This will see Inghams remain Woolworths’ number one poultry supply partner.
However, it includes a “phased reduction” in annual volume, which “facilitates Inghams customer diversification strategy to a broader and more balanced customer portfolio and aligns with Woolworths’ approach of diversifying its supplier mix across its fresh poultry category.”
Inghams said it had secured “significant new business” for FY25 from other customers and is actively working on additional new business opportunities.
Outlook for the Inghams share price in FY25
For FY25, the company gave some interesting outlook comments.
The core poultry volume is expected to fall by between 1% to 3%. Underlying EBITDA is expected to be in a range of between $236 million to $250 million, which is between flat to 6% growth.
Consumer conditions in the near-term are expected to “remain challenged” due to the cost-of-living pressures, with inflation expected to remain elevated during FY25.
FY25 core poultry volume is expected to slightly fall because of the Woolworths supply agreement. However, within that overall decline, some improvement is expected in the fast food channel volume.
However, core poultry net selling prices is expected to show “modest growth”, excluding the potential effect of any significant feed cost reductions.
Based on current commodity pricing trends, Inghams expects some net benefit from potentially lower key feed costs.
It’s expecting to achieve annualised cost savings through procurement, operational, and continuous improvement initiatives that will “significantly contribute to offsetting general inflationary effects.”
I think the Inghams share price could be an opportunity to buy at the current level if the company can continue growing its profit in FY25 and beyond. The solid dividend is also an attractive feature. However, as a (somewhat) commodity business, I’m expecting there to be volatility into the future.
