Israeli food company Strauss Group (TASE: STRS) had NIS 2.2 billion revenue in the first quarter of this year, representing growth of 11.5% in comparison with the corresponding quarter of 2021 (excluding exchange rate effects), according to the company's financial statements released this morning. Because of the extensive recall of products announced last month, however, operating profit fell 64.7% to NIS 102 million and net profit attributable to shareholders fell 79.2% to NIS 43 million.
The recall, which followed the discovery of salmonella in products of Strauss's Elite chocolate factory in Nof Hagalil, caused a decrease of NIS 60 million in the Fun & Indulgence segment's sales. The Health & Wellness segment, which includes the dairies, Yad Mordechai and the Food Division, grew 4.8% to NIS 669 million. Total sales by Strauss Israel in the quarter, including the negative impact on the Confectionery Division, amounted to NIS 975 million, representing an increase of 0.1% over the corresponding period last year. Strauss Israel made an operating loss of NIS 15 million.
Strauss Group estimates that, on an initial estimate, the recall and the shutdown of the Nof Hagalil factory will result in a decline of NIS 170-239 million in its annual net profit. The estimate includes estimated insurance payments covering part of the damage.
Strauss Group also says that it cannot at present estimate the effect of the recall and the shutdown on its future share of the confectionary market. So far, eight applications have been filed for class actions against the company, and document discovery applications have been filed for the purposes of a possible derivative action against company officers.
Strauss's share price fell about 10% in the first quarter, wiping approximately NIS 1 billion off its market cap. From the peak price recorded in February, the stock has fallen 20%, cutting the company's market cap by approximately NIS 2 billion. Today, six weeks after the discovery of salmonella at the chocolate factory, Strauss Group's market cap is NIS 9.8 billion.
The company says that Strauss Coffee benefited from a strong first quarter, with approximately 32.6% growth following increased sales by the International Coffee segment as well as the Israel Coffee segment. Operating profit rose 7% to NIS 105 million. The coffee business in Brazil, Poland, Romania and Serbia experienced double-digit growth in the quarter in local currency, and the business in Israel grew by approximately 2.7%. Sales in Russia and Ukraine declined by approximately. 13.3% in local currency as a result of the war between the two countries. Strauss Group says that, in March, business operations in Ukraine were partially resumed and have steadily increased in the second quarter.
Strauss Group's 50% share of the sales of US subsidiary Sabra, which produces and markets refrigerated dips and spreads in North America, fell 32.4% in the first quarter to NIS 97 million. The other 50% of the company is owned by PepsiCo. Strauss Group's share of Sabra's operating loss was NIS 15 million. The loss was due to disruptions in Sabra's manufacturing operations. Last November, not for the first time, salmonella was found in the company's factory in Virginia. arising from the plant's adjustment plan.
As products were not supplied to the market, Sabra's market share fell from 61.7% to 45.8% in the first quarter of 2022 in comparison with the corresponding period last year. Strauss Group says that, in the past few weeks, Sabra has resumed partial production and sales, and estimates that full production capacity will be restored in the second half of 2022. For the second quarter, the company estimates that Sabra will record an operating loss of $15-17 million (50%), of which $6-8 million is nonrecurring.
Two companies in Strauss Group's foodtech incubator The Kitchen Hub raised capital in the first quarter. Strauss Group is in the process of launching The Kitchen Hub 2 with international partners. Strauss Group's holdings in the incubator companies was valued at NIS 412 million at the end of March this year, which compares with NIS 149 million at the end of March last year.
Strauss Group president & CEO Giora Bardea said, "Along with growth in the Group's international coffee business, including a recovery in business activity in Ukraine, continued growth in the Group's water company in Israel and in China, and growth in all activities in Israel, the Group is dealing with complex challenges in Sabra and in the confectionery business in Israel. Strauss is a strong group that has experienced difficult times and crises in the past. Its resilience has always enabled it to not only exit these situations successfully, but to grow from them and emerge a better company. The challenges include operational, financial and marketing aspects. I am convinced that the resilience of our brands, finances and people will enable us to successfully overcome and return to activity and growth in the near term.
"The process of restoring activities at the Nof Hagalil plant is fully underway. We are making every effort to complete this process well within the timeframe defined by the Ministry of Health, with the aim of resuming the production of our beloved confectionery brands as soon as possible."
Strauss Group's share price is up just over 2% at NIS 86.01 on the Tel Aviv Stock Exchange this morning.
Published by Globes, Israel business news - en.globes.co.il - on May 25, 2022.
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