Expectations are growing that food companies' second-quarter results this year will not be as weak as feared. Despite continued headwinds from high inflation squeezing consumption, the burden of materials and supplies costs, and price cuts on some products, analysts say companies with a high share of overseas sales were supported by export growth and a strong dollar.
However, the outlook sharply diverges by company. Samyang Foods, Orion and Nongshim, whose overseas businesses centered on ramyeon and confectionery have grown quickly, are expected to post double-digit operating profit growth. In contrast, CJ CheilJedang and Daesang, which rely heavily on imported materials and supplies and the domestic market, appear to have struggled to defend profitability.
◇ Buldak, Choco Pie and Shin Ramyun are propping up earnings
According to FnGuide on the 25th, consensus forecasts for major food companies' second-quarter results this year are generally expected to improve from a year earlier. In particular, companies with a high proportion of overseas revenue in ramyeon and confectionery are showing standout growth.
Samyang Foods is estimated to post second-quarter revenue of 746 billion won and operating profit of 175.8 billion won. Those figures are up 34.9% and 46.4%, respectively, from a year earlier. Among major food companies, it has the highest growth rate in both revenue and operating profit. The gains are seen as driven by increased sales in overseas markets such as the United States and Europe, led by Buldak spicy ramyeon.
Because Samyang Foods exports products manufactured in Korea, it is considered a company that benefits relatively more from a strong dollar. When the won-dollar exchange rate stays elevated, converting overseas sales into won expands both scale and profit. With global demand for Buldak spicy ramyeon continuing, higher volumes and the exchange-rate tailwind appear to have lifted results in tandem.
Orion's second-quarter revenue is forecast at 870.6 billion won, up 12% from a year earlier, with operating profit at 137.6 billion won, up 13.3%. Continued growth at overseas subsidiaries in China, Vietnam and Russia, along with increased exports of confectionery products, is seen supporting results.
Nongshim is also expected to report second-quarter revenue of 923 billion won and operating profit of 48.8 billion won. Revenue would be up 6.4% and operating profit up 21.6% from a year earlier. Increased overseas sales of key products, including Shin Ramyun, appear to have led to improved profitability.
Lotte Wellfood's second-quarter revenue is projected at 1.1142 trillion won, up 4.7% from a year earlier, with operating profit at 44.5 billion won, up 29.7%. Growth at overseas subsidiaries in India and Kazakhstan appears to have contributed to better results. In addition, expense efficiency and a shift toward a profitability-focused product portfolio are expected to push operating profit growth above the revenue growth rate.
Pulmuone is also expected to improve its results. Pulmuone's second-quarter revenue is projected at 883.5 billion won, up 5.3% from a year earlier, with operating profit at 25.6 billion won, up 30.8%. Improved performance at overseas subsidiaries and efficiency gains in domestic food and foodservice operations appear to be reflected.
◇ K-food export growth plus a strong dollar effect
One factor buttressing food companies' results is rising K-food exports. According to the Ministry of Agriculture, Food and Rural Affairs, first-quarter exports of K-food Plus (agri-food and agri-industry products) this year totaled $3.35 billion, up 3.5% from a year earlier. By category, ramyeon, snacks, beverages, rice-processed foods and ice cream led the export gains. Ramyeon exports were $434.5 million, up 26.4% year over year, while snacks rose 11.4% to $193.9 million.
Rising exports helped domestic food companies partly offset sluggish local demand. Korean consumers feel burdened by dining out and processed foods due to high inflation, but overseas demand continues for Korean ramyeon, snacks, frozen foods and beverages. In particular, ramyeon is cited as a representative category whose recognition has grown in the global market alongside the spread of K-content.
A strong dollar is also acting as a buffer for food companies with a large export share. When the won-dollar exchange rate remains high, converting overseas sales into won expands revenue and profit. The more a company manufactures in Korea and exports abroad, the more pronounced this effect can be.
For confectionery companies, last year's increases in prices of key materials and supplies such as cocoa and sugar were a burden.
◇ CJ and Daesang are expected to see profit declines
By contrast, companies with a high share of domestic and ingredients businesses are expected to fare relatively poorly. CJ CheilJedang is forecast to post second-quarter revenue of 6.9335 trillion won and operating profit of 277.8 billion won. Those figures would be down 4.2% and 21.3%, respectively, from a year earlier.
With growth slowing in the domestic processed food market, pressures from costs and selling, general and administrative expenses, and profitability in the ingredients business appear to have weighed. CJ CheilJedang is expanding its overseas food business led by Bibigo, but given its overall business structure—where ingredients, bio and domestic food still account for a large share—it is exposed to both a strong dollar and materials and supplies cost burdens.
Daesang is also expected to see slight second-quarter softening. Daesang's second-quarter revenue is projected at 1.092 trillion won, up 1.5% from a year earlier, but operating profit is forecast to fall 3% to 39.6 billion won.
Lotte Chilsung Beverage is expected to see flat profit despite revenue growth. Lotte Chilsung's second-quarter revenue is projected at 1.1186 trillion won, up 2.9% from a year earlier, but operating profit is forecast to edge down 0.3% to 62.2 billion won. While beverages benefit from the onset of the summer peak season, competition in the liquor market and cost pressures appear to have limited profitability improvement.
Binggrae is also expected to see higher revenue but lower operating profit. Binggrae's second-quarter revenue is projected at 425.2 billion won, up 3.81% from a year earlier, but operating profit is forecast to fall 5% to 25.5 billion won.
An industry official said, "Rather than a clear recovery in domestic consumption, it appears some companies defended their results as exports rose and a strong dollar provided an extra boost," adding, "Because it is not easy for food companies to pass cost burdens on to selling prices, overseas expansion, product mix improvements and expense efficiency will likely determine profitability."