Inghams profit up to $126m, but drought, costs sear outlook

Despite the trans-Tasman chicken producer and processor posting a 10 per cent lift in full-year profits last week, it lamented feed costs were near historic highs and would potentially bite hard during 2019-20.

At the same time Ingham's stockfeed processing business in Australia and New Zealand lost sales because of last year's collapse of significant NSW customer and processing rival, Red Lea, and the sale of its Mitavite division to Victorian-based horse feed manufacturer, Hygrain.

Ingham's core poultry throughput volumes grew by 4.3pc last financial year to almost 415,000 tonnes, enabling it to lift full-year net profit after tax to $126 million.

However, costs jumped 5pc and the company warned expenses would continue to hurt if the drought further eroded its normal nine-month grain reserves.

Costs relating to restructuring the processing and supply chain, which handles 4m birds weekly, would also continue, although demand growth prospects were still bright.

As the market has absorbed the conflicting trading result messages, Ingham's' share price has fallen about 25pc in the past week - down from $4.08 to $3.17.

Managing director, Jim Leighton, said much would depend on weather conditions in the coming nine weeks and the fortunes of this summer's grain harvest.

Australian margins were being "negatively impacted by higher input costs", while NZ feed volumes had declined because of reduced demand from the dairy sector, which had enjoyed excellent pasture conditions.

In NZ, an oversupply of poultry product also resulted in flat core volume sales and an inability to pass on input cost increases, although returns were "solid".

However, unexpectedly, in Australia the company experienced a demand surge.

This was partly attributed to Red Lea's demise, combined with a reversal in buyer contract intentions, which had previously prompted Ingham's to rationalise its processing output.

After closing its value-added meat processing facilities in Brisbane a year ago and redirecting operations to plants in NSW, Victoria and South Australia, Ingham's was caught on the hop and forced to pay extra production and logistics costs to meet the upswing in demand from major customers.

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Ingham's also has primary processing operations in all states, except Queensland, feed mills in all states, chicken hatcheries in all states, and more than 300 broiler farm suppliers across Australia and NZ.

Mr Leighton said the further processing network's rationalisation had "not delivered to plan", and stronger customer demand had placed unexpected pressure on operations which hurt productivity and increased costs.

Ingham's tipped the financial impact would continue well into the 2019-20 financial year.

"Poultry is a dynamic business that requires deep expertise and experience to unlock potential," said, Mr Leighton, who joined Inghams early this year after a career with US food giants such as poultry businesses, Perdue Farms and Pilgrim's Pride.

"Our newly assembled leadership team brings world class experience and expertise from companies like Tyson Foods, Pilgrims and Perdue.

"This new team knows what great looks like and how to achieve it."

The leadership team, which will soon include a new chief financial officer, plus recently appointed chief operations officer and chief customer officer would unveil new strategic and operational plans in October.

Ingham's is a major poultry meat and processed product supplier to the retail, quick service restaurant and food service sector in Australia and NZ.

The company will pay a final dividend of 10.6 cents a share.