April 29, 2014

EMP posts 17% growth in 1Q14 net earnings

In a press statement, EmperadorInc (EMP) last Friday announced 1Q14 net earnings of P1.7b, up 17% YoY and equivalent to 24.6% of full-year consensus forecast. The net income growth was almost in line with the 19% growth in 1Q14 revenues. EMP has yet to release the full details of its 1Q14 results.

Our take: The strong growth may be partly due to low-base effect as the 1Q13 performance was weighed by low volumes with the implementation of the excise tax hike in January last year that prompted EMP to raise its prices by 16%. But with earnings growth now almost in line with revenue growth (the slight discrepancy may be traced to other income - e.g., forex gains – which the company usually lumps with revenues), we surmise that margin pressures may be easing. To recall, 2013 revenues grew 25% but net income grew only by 17% because costs and expenses soared 33%.

The latter was largely due to higher costs of imported raw materials amid a weaker peso. This was aggravated by additional packaging costs, particularly on new bottles as recycled bottles were no longer enough to accommodate the volume growth.

No details were given yet by the company but if our analysis holds, this could turn around the sentiment on the stock which was weighed down by the margin squeeze and weak volume growth last year. Without any price hikes in 1Q14, the revenue growth during the quarter may be mostly due to volume growth that could have been partly fueled by trade-loading by distributors ahead of a 4% price hike implemented earlier this month.

However, given that the 4% price hike was just nearly tracking inflation, we believe that the volume growth is still creditable. We also believe that the limited price hike will not have a significant effect on prospective volume growth unlike last year’s hefty price increase.– WealthSec