November 04, 2014

EMP posts 15% rise in 3Q14 net income

In a press statement, Emperador Inc (EMP) yesterday said its 3Q14 net income grew 15% YoY to P1.5b. This should bring its 9M14 net income to P4.59b, up 2.3% YoY. The company has not yet made available its full results but it said stronger volume growth and higher margin were the key earnings drivers without disclosing specific details. Gross profit went up 13% YoY to P2.6b while consolidated revenues were at P20b, down 2.9% by our estimates. However, this also implies that revenues grew 2% YoY in 3Q14 after falling by 5.3% in 1H14 and by 25% in 2Q14.

Our take: The 9M14 numbers suggest a marked improvement in 3Q14 earnings due to higher gross profit. However, we believe that the significant improvement in gross profit can be traced more to lower costs rather than revenue growth as the company benefited from the continued weakness of commodity prices during the quarter. This also implies that the company continued to reel from the impact of tougher competition.

Thus, its strategy to offer smaller-sized SKUs to gain back market share has yet to take effect. Given the implied improvement in costs, we estimate gross margins to have risen to 37% in 9M14 from 35% in 1H14. At any rate, EMP’s results still came below market expectations and represented just 66% of full-year consensus forecast. – WealthSec