Freedom Foods reports strong first half profit growth

Freedom foods cereal share price

The Freedom Foods Group Ltd (ASX: FNP) share price will be one to watch on Friday.

This follows the after-hours release of the diversified food company’s half year results today.

How did Freedom Foods perform in the first half?

For the six months ended December 31, Freedom Foods delivered net sales of $299.7 million and operating EBDITA of $32.7 million. This represents an increase of 43.4% and 55.6%, respectively, over the prior corresponding period. The latter was driven partly by the widening of its gross margin from 24.7% to 27.1%.

Management advised that this result reflected increased sales and earnings contributions from its Dairy Beverage, Nutritionals and Plant Beverage business units. This was offset partially by reductions in Cereals & Snacks and Specialty Seafood sales compared to the prior corresponding period.

On the bottom line, Freedom Foods reported an operating net profit after tax increase of 42.1% to $9.1 million and a 45.6% lift in statutory net profit after one-offs and non-cash expenses to $5.4 million.

Net cash from operating activities came in at $15.4 million. However, due to its investment in property, plant and equipment, the company recorded a net decrease in cash of $48.2 million. This left Freedom Foods with a cash balance of $7.2 million at the end of the period.

In light of this, the Freedom Foods board declared a 2.25 cents per share unfranked dividend, which is flat on the prior corresponding period.

Coronavirus update.

The company’s managing director and CEO, Rory Macleod, advised that Freedom Foods expects some short-term disruption from the coronavirus outbreak. However, the company remains very positive on its medium term prospects.

He said: “While the Group expects some short-term disruption to China demand over the next few months as internal supply chains in China return to normal operation, the underlying medium-term demand from key customers in this market remains unchanged, with the Group scheduled to start supply to new China based customers from June 2020. Sales to China represent approximately 15% of our net sales value in the current half year.”

Outlook.

While no concrete guidance was provided for the full year, Mr Macleod appears confident that its strong growth will continue in the second half.

He advised: “Increasing revenues from the current and expanded capabilities, including ingredients and new consumer applications, are expected to materially positively impact sales and earnings into 2nd half FY 2020 and beyond.”

“We expect the Group to deliver higher sales and earnings growth in the second half of FY 2020, reflecting seasonality and further growth across key business activities,” he concluded.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Freedom Foods Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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