ING

The Ingham’s result was well ahead of consensus expectations. That will lead to positive analyst revisions.

Revenues have showed a more or less complete recovery from the COVID and supply chain related disaster of the last few years.

The Q&A earnings call would suggest that positive momentum continues, with the first 7 weeks of the new year tracking well.

The comment on volume also augers well, we think, as they return towards longer-run trends.

And that volume growth is around 2-3%.

As background, the pandemic impacts on demand (everything closed) and associated supply chain woes (difficult to get freight, labor, feedstock) caused earnings to collapse. You can see the first major dent in 2020, and then subsequent dents during the period lockdowns.

People stopped going out, and people started ordering laptops, computers, kettles, gym gear. They did not suddenly start eating extra chicken in-the-home, to make up for the chicken they weren’t eating at a restaurant.

That last major bout of COVID, i.e. Omicron, was especially significant.

Product mix shift (wholesale vs retail) also meant margins went down, and the combination of weaker revenue and weaker margins decimated earnings.

Further, the RUS-UKR war meant wheat costs went through the roof.

Geographic diversification also meant little, as much the same factors were playing out in NZ.

However, in response to cost inflation, ING began to implement material price increases…

…which, as revenues stabilized with the end of COVID, meant a considerable improvement in the gap to costs, as such, earnings improved materially.

Those price lifts are nothing to sneeze at, as the ING customer base (Woolworths, Aldi, Coles) are all very powerful.

Cashflows are likewise much improved, although there was still working capital drags as the price/cost of inventory is higher.

In our view, there is considerable scope for improvement in net profit margins, as initiatives in automation continue.

Automation and productivity enhancement are “kind of given”. What exactly does the below mean, when an analyst (who is unlikely to be an expert in running a chicken farm) looks at the below, what is the key takeaway.

Well, to a degree, it is (for better or worse) common sense. The company is investing in itself, and seems to outline a plausible-sounding set of initiatives that you can imagine will uplift production or lower cost, and that sort of stuff seems worth spending money on.

It is the same for some of the production/future growth initiatives. If there’s one thing that tends to breed a competitive advantage, it is network location effects. A new facility that is close to vertically integrated breeder farms is a sensible thing to do. A stunning amount of inefficient cost can be introduced to a business by having distribution centers that are in the wrong spot.

Perhaps more mundanely, on the cost side, we would also note the unemployment rate is now moving up, and labor tightness across Australia and New Zealand had, up till now, been very pronounced.

Finding a more readily available pool of labour should also help, over time.

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