Frutarom Industries Ltd. (TASE: FRUT; LSE:FRUT; Bulletin Board: FRUTF), which produces flavors and raw materials for the food and beverages industry, continues to report good results. The company, which is still making acquisitions at a good clip, increased its revenue by 28% to a record $300 million in the third quarter.
Excluding one-time expenses, Frutarom's gross profit grew 24% to $114 million (39% of sales) in the third quarter. The company, led by CEO Ori Yehudai, also increased its operating profit by 21.6% to $45 million (15% of sales). Frutarom reported that its net profit, excluding one-time expenses, had jumped 13.8% to a record $35.1 million.
GAAP net profit amounted to $32.2 million, 28.7% more than in the corresponding quarter last year. Frutarom's share price was almost unchanged, after having climbed 18% over past year, pushing the company's market cap up to NIS 12.5 billion.
Frutarom's revenue rose 32.6% to $858 million in the first nine months of the year. Its gross profit grew 30.2% to $327.4 million, its operating profit was up 17.3% to $116.6 million, and its GAAP net profit rose 16% to $84 million.
Target: $2 billion sales by 2020
Frutarom continued its fast pace of acquisition in 2016, completing eight acquisitions at an aggregate cost of $245 million. The two most recent acquisitions were in Latin America: six weeks ago, Frutarom acquired Brazilian company Nardi Aromas for $1.6 million, and two weeks ago, it signed an agreement to purchase 75% of the shares in Grupo Piasa of Mexico for 405 million pesos ($20.5 million, including the company's debts).
Upon publishing Frutarom's results, the company management reiterated its intention of meeting sales target of at least $2 billion by 2020. Yehudai stated, "The projects for combining and consolidating activities and production sites and toward achieving utmost efficiency are proceeding successfully. These steps include the combining of activities and substantial streamlining of savory operations in Europe following the Wiberg acquisition (expected to bring savings estimated at over US$ 12 million annually) and the streamlining of the natural extracts operations in the Specialty Fine Ingredients division (expected to bring savings estimated at over US$ 6 million annually). These merging and efficiency measures will contribute in the coming years to strengthening our competitiveness and improving profits and margins, and should lead to operational savings on an annual basis in the range of US$ 20-22 million in relation to Frutarom’s cost structure in Q2/2016."
Commenting on Frutarom's results, Excellence brokerage analyst Michal Alshech writes, "The results were as expected. The financial reports reflect a high growth rate and a drop in profit margins, following cost-cutting and changes in the company's product mix." Alshech expects "a return to higher profit margins by the company, starting in the first quarter of 2017," adding, "At the end of the current month, at the close of business in the US, NIS 200 million in end-of-year demand for the company's shares in the US is expected following the revision of the MSCI indices… the current share price already reflects this."
Published by Globes [online], Israel business news - www.globes-online.com - on November 22, 2016
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