The food industry is expected to post overall improved results in the first quarter from a year earlier. Still, some say it is hard to see this as an entry into a full-fledged recovery phase. That is because external variables, including government pressure to cut prices, a strong dollar-won exchange rate, and instability in materials and supplies procurement, have worsened, heightening concerns about profitability.
According to FnGuide on the 10th, most major food companies are estimated to have improved results from a year ago. The interpretation is that a combination of factors is at work, including a slight easing in the upward trend of materials and supplies prices, growth in overseas operations, and a base effect from last year's weak performance.
Lotte Wellfood is estimated to post first-quarter sales of 1.0202 trillion won and operating profit of 23.6 billion won, up 4.6% and 44.2%, respectively, from a year earlier. Lotte Chilsung Beverage is also expected to have increased sales and operating profit to 945.8 billion won and 36.2 billion won, up 3.9% and 44.6%, respectively. However, considering that both companies saw their operating profit in the first quarter of last year fall more than 50% from a year earlier, some interpret the latest improvement as largely a rebound driven by base effects.
OTOKI is expected to record sales of 942.1 billion won, up 2.3% from a year earlier, and operating profit of 60.5 billion won, up 5.2%. Nongshim is also projected to see sales of 931.4 billion won and operating profit of 60.2 billion won, up 4.3% and 7.4%, respectively. Pulmuone's first-quarter sales are forecast at 842.6 billion won, up 6.2% from a year earlier, with operating profit at 16.5 billion won, up 46.7%.
Overall, while major companies managed to hold their ground by sustaining at least a modest growth trend, the growth magnitude itself is assessed to have remained limited. Questions are also being raised about sustainability, as this improving trend appears driven more by external factors and base effects than by a structural recovery in profitability.
Even within the sector, performance trends diverged by company. CJ CheilJedang's first-quarter consolidation-based sales and operating profit are estimated at 6.9155 trillion won and 278.3 billion won, respectively. They are expected to fall 4.1% and 16.5%, respectively, from a year earlier. Price cuts implemented at the start of the year appear to have affected results. Following a Korea Fair Trade Commission probe into suspected collusion, reductions in sugar and flour prices and adjustments to starch syrup prices are seen as having been partly reflected in profitability.
Daesang is also expected to see weaker results. First-quarter sales and operating profit are estimated at 1.1004 trillion won and 43 billion won, respectively, down 2.7% and 24.9% from a year earlier.
The issue is the business environment ahead. With tensions rising recently in the Middle East, the won-dollar exchange rate is fluctuating above the 1,500-won level, and disruptions in naphtha supply, used as a packaging material feedstock, are adding to expense burdens again. While headline results improved in the first quarter, it is hard to view this as a full-fledged recovery phase.
On top of that, in line with the government's price stability stance, food companies have been cutting prices for key products such as sugar, flour, cooking oil, ramen, and snacks, making it even harder to defend profitability. A food industry official said, "Considering the exchange rate and logistics costs, it is a time when price hikes are desperately needed, but aligning with the government stance has pushed us to the limit."
Another industry official noted, "When volatility in exchange rates and materials and supplies moves higher at the same time, food corporations have no choice but to respond through internal efficiency rather than pricing," adding, "Over the mid to long term, gaps among corporations could widen further depending on their product portfolios or the structure of their overseas businesses."