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.

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