This year, the profits of the domestic food industry in the first quarter have been mostly counted as negative growth. Due to a downturn in the domestic market and rising exchange rates, major companies have raised product prices since the beginning of the year, but the actual effect of performance improvement is expected to be fully reflected after the end of the second quarter. However, some companies that performed well overseas recorded strong results in the first quarter.
◇ First quarter operating profit mostly shows negative growth... expectations for a rebound in performance in the second half
According to financial information firm FnGuide, the first quarter sales of the industry's No. 1 company, CJ CheilJedang, are expected to be 7.404 trillion won, a 2.6% increase compared to the same period last year. However, operating profit is anticipated to decline 1.1% to 371.8 billion won. Analysts expect that due to the economic recession, food consumption has decreased both domestically and internationally, and the delay in the operation of the dessert factory due to a tornado in the United States will lead to poor results.
LOTTE Wellfood is expected to see first-quarter sales of 975 billion won, a 2.5% increase compared to the same period last year. Operating profit is projected to decline sharply by 35.6% to 24 billion won. The main causes of profitability deterioration are cited as the contraction of domestic consumer sentiment and rising prices of key materials and supplies such as cocoa.
LOTTE Chilsung announced preliminary results for the first quarter yesterday. Due to the economic downturn, both alcoholic and non-alcoholic beverage sales declined, and operating profit was recorded at 25 billion won, a decrease of 31.9% compared to the same period last year. Sales fell to 910.3 billion won, down 2.8%.
The ramen industry also could not escape the pressure on performance. Nongshim is expected to report first-quarter sales of 908.6 billion won, a 4.1% increase, but operating profit is expected to decrease by 15.3% to 52 billion won. OTOKI is projected to see sales increase by 2% to 901.1 billion won, with operating profit declining by 10.9% to 65.2 billion won due to the ongoing cost burden from rising prices of palm oil and starch.
The industry is forecasting that performance recovery will begin at the end of the second quarter. Previously, CJ CheilJedang raised the prices of major products such as dumplings and Spam by an average of 5% to 10% starting in March. LOTTE Wellfood raised the prices of 26 types of chocolate products by an average of 9.5% in early February. Nongshim also increased the prices of 17 products including Shin Ramyeon and shrimp chips by an average of 7.2%. However, due to the depletion of existing inventory and consumers' pre-purchases, the impact of the price increases on performance will only be significant after the second quarter.
Jang Ji-hye, a researcher at DS Investment & Securities, noted, "CJ CheilJedang is expected to recover performance starting in the second quarter," and added, "The increase in domestic food prices, the resumption of transactions with Coupang, and normalization of the U.S. dessert factory around May or June will positively affect the performance." Kwon Woo-jung, a researcher at Kyobo Securities, pointed out, "LOTTE Wellfood is expected to see the effects of price increases reflected fully starting in the second quarter, and by the third quarter, the price drop of Kakao will also be incorporated."
◇ Samyang Foods, with 80% export ratio, is expected to see a 30% increase in operating profit
Companies that have shown growth in overseas markets are expected to succeed in defending their performance. Samyang Foods is anticipated to report first-quarter sales of 498.2 billion won, a 29% increase compared to the same period last year, with operating profit expected to increase by 30.4% to 104.5 billion won. Samyang Foods’ export ratio is as high as 80%, meaning that when the exchange rate rises (the value of the won decreases), profitability also improves. Industry insiders believe that when the Miryang 2 plant starts operations in the second half, the supply shortage will be resolved and overseas growth will increase further.
ORION, which has a high proportion of overseas sales, is expected to see first-quarter sales increase 7.2% to 802.5 billion won, with operating profit expected to rise 6.2% to 132.9 billion won. This success is attributed to steady sales of snacks in overseas markets such as China and Russia. SPC Samlip's first-quarter performance is also projected to have improved compared to the previous year. Especially, operating profit is estimated to have increased by 19.8% to 20.7 billion won.
An industry insider remarked, "In the first quarter, most corporations find it difficult to feel the effects of price increases, but it is expected that profitability will gradually improve starting in the second half." However, they cautioned that if consumer sentiment does not recover quickly, there may be limits to sales growth. Strengthening product competitiveness and expanding into overseas markets will be key to improving performance.