May 19, 2014

D&L Industries posts 20% gain in 1Q14 earnings

D&L Industries (DNL, Buy) reported 1Q14 net earnings of P377m, up 20% YoY on the back of a 34% growth in revenues to P3.1b. Commodity oils business led growth as its volume sales grew 28%. Plastics segment also staged a strong recovery, with volumes rising 25% from the 2% decline registered for the whole of year.

Aerosols volume sales grew19%, easing from the 27% growth in 2013 as DNL believed its customers maintained high inventory levels last year. Meanwhile, its 34% owned affiliated contributed P33m in equitized earnings, up38% YoY as the company pruned unprofitable accounts.

Our take: The 1Q14 numbers make up 23% of our full-year earnings forecast of P1.67b. We note that DNL also earned about 23% of its 2013 earnings in 1Q13. The increased contribution of low-margin commodity oils pulled average gross profit margin 80 bps lower YoY to 18.4%, which is slightly lower than our forecast 18.7%. Management expects margins to normalize in 2H14 with greater profit contribution from high-margin products. We maintain our Buy rating on DNL.– WealthSec