Strauss Reports Recovery in Q4 Financial Results Following Setbacks: Net profit of NIS 120 million


by Ifi Reporter Category:Financial Nov 30, 2023

In the third quarter of this year, Strauss reported a notable increase in sales, reaching NIS 2.67 billion, marking a 7.3% rise compared to the corresponding quarter. However, the company's profitability is under pressure, with a net profit of NIS 120 million, significantly lower than the NIS 204 million in the third quarter of 2021.

The gross profit rate improved slightly to 32%, up from 29.9% last year but still below the 36% recorded in the third quarter of 2021. Operating profit, at 8%, doubled from the previous year but fell short of the 13.1% achieved in 2021.

One contributing factor to the profitability challenge is the increase in raw material costs. Robusta coffee prices hit an all-time high with a 26% surge, while the exchange rate's inflationary effect added to the strain.

Despite a 20% growth in sales in Israel, the company's market share only reached 12%, reflecting heightened competition. The dairy sector saw a 10% sales increase, but the "Pleasure and Pleasure" candy segment, recovering from a recall, experienced a 70% sales increase with an operating loss of NIS 8 million.

Internationally, Strauss Coffee faced a 3.6% decrease in revenues and a 50% drop in operating profit due to heightened competition in Brazil and elevated green coffee prices. Strauss Water achieved record revenues but experienced a 17% decrease in operating profit due to inflation's impact on the exchange rate.

Sabra, recovering from a factory closure, recorded a 35 million shekels operating profit. However, increased competition and the entry of private brands have hindered market share recovery.

CEO Shay Babad acknowledged the challenges, attributing the erosion in profitability to a substantial increase in input prices. Despite the ongoing war's impact on operations, Babad stated that the current impact is not material.

In a related development, Diplomat reported a 13.9% increase in sales but faced a 19% erosion in net profit, amounting to NIS 21.5 million. Diplomat warned of potential price increases in 2024 due to suppliers raising prices and the weakening shekel.

Diplomat Anticipates Price Hikes in 2024 Amidst Profit Erosion

Diplomat, a key importer, reported a robust 13.9% sales increase in the third quarter, reaching NIS 863.7 million. However, the company faced a considerable challenge as its net profit experienced a 19% erosion, settling at NIS 21.5 million.

In response to ongoing challenges, Diplomat issued a warning in its reports, indicating that some of its suppliers plan to continue raising prices in 2024. The company anticipates that, given the continued weakening of the shekel against the euro and the dollar, it may be compelled to pass on these price increases to customers. Failure to do so would have a material impact on its financial results, according to the company's statement.

During the third quarter, Diplomat confronted price increases for the products it imports. The decision to postpone consumer price increases in the fourth quarter, following the outbreak of war in Israel, further impacted the company's gross profitability on some products.

As Diplomat navigates the challenging economic landscape, the company's cautionary note signals potential adjustments in pricing strategies to mitigate the impact of external factors and maintain financial stability.



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