Falling egg prices and poor Zambian harvest hit Quantum Foods

Western Cape-based poultry and animal-feeds business Quantum Foods says falling egg prices and a poor harvest in Zambia weighed on its half-year profits.

Headline earnings per share (heps) are expected to fall in a range of 23%-38% in the group’s six months to end-March from the prior period’s 45.4c. Heps is a widely used profit measure in SA, stripping out exceptional or one-off items to give a better measure of underlying performance.

The group said higher volumes of eggs were sold during the period, but margins were lower as higher supply drove down prices. Feed costs rose.

“Some 25% of Quantum’s revenue is derived from eggs and that division remains the cyclical swing factor to earnings,” said independent  SmallTalkDaily analyst Anthony Clark.

The group is also expected to report lower earnings from its rest-of-Africa operations. This was due mostly to Zambia, where the “very poor” 2019 maize harvest resulted in materially higher feed costs, and consequently lower margins from eggs and lower demand from livestock customers.

“This trading update was slightly better than I expected as the market remains challenging. However, much has been done since its split from Pioneer Foods to de-risk the business cyclicality and animal feeds and farming both had strong operating periods,” Clark said.

The group said earnings had risen in its feeds and farming business, the latter due to higher volumes of live birds supplied by its Western Cape broiler farming operations.

It continued to operate as an essential service, and while there had been no effect on operations from the Covid-19 pandemic so far the effect on consumers was uncertain.

“The company is privileged to be part of the food supply chain, and believes that the diversity and geographical spread of its operations, together with sufficient access to funding facilities, should allow successful navigation through this period of uncertainty,” the group said.

Quantum’s share price fell more than 18% so far in 2020, giving it a market capitalisation of R670m on Thursday. Over the same period the JSE lost 21.06%.

gernetzkyk@businesslive.co.za