Atria Plc – Q3 expectations are only moderate

Atria's Q3-2013 Interim Report will be published on November 1^st and now it is time to look at the results from recent years.  The chart below illustrates Atria's quarterly EBITs starting from 2009.  The readings are highly unofficial. Large write-offs (Atria Baltic 2009-Q4 about € 7 million and Atria Russia 2010-Q3, about € 10.5 million) are excluded. 

Together with the chart let’s look at what analysts might think of Atria's immediate future.  FT summarizes analysts' forecasts and for Atria Plc, 2013 EPS Q3 consensus is €0.31.  Individual estimates range from €0.25 to €0.38. 

Obviously we do not know the arguments of the analysts, but we can speculate on what kind of country-specific results their estimates could be based on.  Let’s suppose that non-recurring costs are not included in the analysts’ estimates.

In the chart below, actual EBITs are indicated by solid lines.  Dashed circles show a set of reasonable country-specific Q3 EBIT guestimates, which could lead to Q3 EPS of €0.32 which is close to analysts’ consensus.

Quarterly earnings before interest and taxes by year in Atria's business areas, large write-offs are excluded. 

Some additional guesswork – Total of those country specific guesses is €17 million.  We must now make a few subtractions using the past few quarters’ readings as guidelines.  Some minor subtractions or additions are ignored.  After subtracting unallocated costs about €2 million, we have a guestimate for the whole Group’s EBIT.  Then subtracting finance cost about €4 million and taxes roughly €2 million, we get the final reading of around €9 million. Number of shares is about 28 million. Hence earnings per share would be about €0.32, which is very close to analysts’ consensus. It does not look very challenging.

Atria Finland – Q3 2013 EBIT of €12 million could be a reasonable guess. It is not a good result but during Q2 and Q3 Atria Finland has sought to obtain more market share by aggressive pricing.  Hence EBIT likely will be slightly lower compared to last year. It is likely that Atria Finland may not continue aggressive pricing, but rather its competitors will do it instead.  Anyway, during the whole Q3, Atria Finland was the one with price reductions on many season products.

Atria Scandinavia – Q3 2013 EBIT of €4 million is a pure guess, but looking at the previous Q4 results, one may ask, what else could be expected.  There’s no really big news from Sweden.  Atria Scandinavia’s Ridderheims brand, targeted to wealthy consumers, is now the main sponsor of a Swedish television series ‘Solsidan’, broadcasted also in Finland by FST5 channel mainly for Swedish speaking audience.  According to Agneta Olsson, Ridderheims’ marketing manager, the series is a perfect match to the brand:  both are for those who want joy and luxury in everyday life. Somewhat frightening is to hear that, according to Olsson, they had only one hour to make the decision. That kind of hurrying surely is not normal Swedish-type decision-making.  The conclusion is clear: the company Ridderheims is currently not doing well. 

Atria Russia – Q3 2013 EBIT of €1 million may be a reasonable guess. Non-recurring costs due to closing of primary production and the plant in Moscow are not taken into account. Already Q2 went well, and now it seems that Atria Russia aims to be profitable as quickly as possible. It is evident that the steps Atria Russia’s has now taken were widely known a long time. As early as the end of September, nationwide business newspaper Vedomosti interviewed Jarmo Lindholm, EVP Atria Russia, and asked direct questions about closures of both the pig farm and the Moscow plant. Lindholm tells that the company is ready to sell them both if the price is good.  Well, now the company abandoned them both even though there is no buyer.  Stated reasons for closing pig farms are not fully clear but now it is history, so let them be. The Vedomosti interview is very broad and straightforward and of course worth reading.

                                                                                                     

Atria Baltic – Q3 2013 EBIT of €0 million is a pure guess but that is the result, the chart above strongly suggests.  This year seems to be slightly better than last year. Closing of pig farms is Russia may indicate that the same could take place also in Estonia.  Atria Group apparently believes that it can succeed without primary production in Russia and it gets along without primary production also in Sweden despite the fact that the product range there is really wide, so why not then put an end to the primary production in Estonia as well?  And indeed, noticed also on this blog in September, Olle Horm, CEO Atria Baltic, recently complained about the fact that the consumers do not value domestic meat. In this situation, maybe he could propose to abandon the primary production. No doubt, own pig farm has been a burden to Atria Baltic.  Besides, in Estonia the Group’s focus has never been on fresh meat but always and only on highly processed products.  


We will look at Atria later but on Friday November 8th, we are going to look at HKScan's businesses. But before that we will take a very brief look at Atria's and HKScan's Q3 interim reports just after they have been released.  


Profit my favorite, loss - just chaos.  Good poem is short!  Didn't you know that?

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HKScan’s Q3 2013 expectations vary - consensus not low enough?

HKScan’s Q3 2013 Interim Report will be released on early November.  Let’s look at analysts’ expectations.  FT brings together analysts’ forecasts, and HKScan’s Q3 2013 EPS estimates range from €0,06 to €0,14.  Consensus is €0,09.  The most notable fact is that the range is really wide.  At the first glance, the consensus looks quite modest and even easy to achieve.  Clearly, analysts are not expecting any kind of an excellent quarter. Last year’s Q3 EPS was €0,11 and in the year 2011 the corresponding figure was €0,09. 

In order to reach EPS of €0,09, the entire Group's Q3 EBIT should be approximately €13 million.  First adding the share of associates' results perhaps some €0,5 million, then subtracting net financial expenses perhaps about €7 million, then continuing guesswork and subtracting taxes about €0,5 million and finally subtracting profit attributable to non-controlling interests, perhaps about €1 million, we end up with the sum of €5 million.  The number of shares is approximately 55 million.  Then, Q3 EPS would be approximately €0,09. 

As we know, HKScan has lowered its profit outlook for FY 2013.  The Group is expecting that the 2013 result will be below last year’s level.   H1 results were only about the same as last year's corresponding period, although HKScan Sweden’s last year’s H1 was catastrophically bad.  This year has gone better in Sweden but the troubles are now in Finland and in Estonia.  The difficulties may well be so large that even the modest consensus of € 0.09 could be missed.

Let's look briefly at HKScan’s market areas. In the chart there is illustrated a scenario, which could correspond to analysts’ evaluations.  The sum of country-specific figures is €15 million. Subtracting Group administration costs, perhaps some €2 million, we could, according to the guesswork provided above, end up with the needed figure of €13 million and the Q3 EPS would be approximately the analysts' consensus of €0,09.

Quarterly earnings before interest and taxes by year in HKScan's market areas, 

large write-offs excluded.  Figures are highly unofficial, all errors are mine.

HKScan Finland is currently in the middle of a mess.  Management is helpless, the biggest competitor has increased its market share by aggressive pricing. Demand has shifted to less expensive meat products. Revenues will decrease but so will EBIT also.  Efficiency measures go on and on.  But the analysts, so it seems, perhaps think that EBIT of €4 million, which is lowest for years, is achievable.

HKScan Sweden's year has gone better than the last year's catastrophic H1, but not at the level of the previous years.  In other words, H1 has not been a success.  Efficiency measures have been going on for years but the gains are nowhere to be seen.  Rapeseed pork concept, will not be a savior, so it seems.  Right now the largest Swedish meat companies try to increase efficiency for instance in slaughtering by forming a new trade association “Sveriges köttföretag”. It looks as if the analysts expect Q3 to run about the same rate as H1.  Then EBIT of €4 million is within the limits.

HKScan Denmark is highly dependent on export.  Thinking export to Russia, likely not the most important market for Rose Poultry, one may ponder, whether or not these temporary restrictions are currently in effect.  Middle East surely is important but there are inconveniences.  EBIT of near €0 million is all one can expect.

                          

HKScan Baltics is not going strong anymore.  Already last year’s Q4 was bad, and the latest Q2 turned out to be really bad.  The new poultry plant in Tabasalu is a positive thing but in the short run it means only extra costs. It is probable that the analysts don’t expect turn for the better.  EBIT of €2 million may be a reasonable estimate.

HKScan Poland is the only from which you can expect fine results.  As such it is absurd, that the company mostly beyond the control of  HKScan, is quarter after quarter the best part of the whole Group.  Let us remember, however, what Boguslaw Miszczuk, president of Sokołów, said early this  year:  The deteriorating economic situation in Poland may limit the consumption of foods, including meat and dairy products – it may be expected that consumers are increasingly interested in lower-priced products. Hence EBIT of €5 million may be a bit too high an estimate.

We will discuss HKScan later but on Friday, October 25^th, we are going to look at Atria’s businesses.  Poetry totality, rhyme enzyme … well, one of home poet’s treasure chests is here.

This is Artoparto and here is my Disclaimer.  Please read it.

Disclaimer:  All content provided on this site is for entertainment purposes only.  This site does not provide any investment advice and content on this site should not be construed as recommendation to buy or sell any financial instruments.  Please consult a qualified financial adviser before making any financial decision.  I make no representations as to the accuracy, completeness, suitability, or validity, of any information on this site or found by following any link on this site.  I will not be liable for any errors, omissions, or any losses, injuries, or damages arising from displaying or using any content provided on this site.  I am not responsible for users' comments.  I reserve the right to update or delete any content on this site for any reason.