Australia’s largest chicken producer Inghams Group has emerged as the victor from last year’s supermarket chook war, crediting the price cutting with driving demand for its birds during its first year as a listed company.
Inghams’ chief executive Mick McMahon said Coles and Woolworths slashing the price of roast chickens from $11 to about $8 in close succession last year contributed to a 13 per cent jump in poultry volume sales in Australia. That beat its prospectus forecast by 4.3 per cent.
“It’s good for us from a volume point of view ??? we’re not investing in those lower prices – our customers [the supermarkets] are – and for us it drives higher volumes off the back of that investment,” Mr McMahon said.
“For us it works out positively, although it does cause a few challenges when you get rapid growth through the supply chain. It can give you a few headaches – but growth is better than the opposite.”
Mr McMahon said sales had also been helped by relatively high red meat prices that saw more shoppers turn to chicken, and strong demand from the fast food restaurants it supplies, which includes KFC and McDonald’s.
High feed prices had increased product costs but that was being passed on to customers during recent weeks, he said.
“We wouldn’t see too much change in the price points that the end consumer sees, but there will be some price inflation that flows through,” he said.
Mr McMahon said the high volume growth seen in 2017 would moderate and return to “historical” trends as it cycles pricing initiatives over this financial year.
Volume sales in New Zealand were about 0.3 per cent softer than forecast in its prospectus, and revenue was 2.8 per cent behind its forecast.
UBS analyst Ben Gilbert said Ingham’s cost-cutting this financial year looked likely to be offset by rising electricity costs, rising feed costs, and falling beef prices, which would attract shoppers over chicken.
Mr Gilbert said predicted earnings would fall between 2 and 5 per cent and cut his valuation from $3.75 to $3.70 with a buy rating.
Statutory net profit was $59.1 million, up 134 per cent on 2016, and up 22.8 per cent to $102 million on a pro forma basis.
Ingham’s declared a fully franked final dividend of 9.5?? per share to be paid on October 4, bringing its total 2017 dividend to 12.1??.
Shares, which listed on the ASX in November at $3.22, closed down 4 per cent on Tuesday at $3.36.