Q2 corporate earnings cut by inflation, fuel costs

MANILA, Philippines — The unabated increase in inflation, soaring fuel costs and the depreciation of the peso against the dollar have cut consumer-related companies’ second quarter earnings, dampening the outlook for the rest of the year for some listed companies which thrive on food, beverage and other consumer-driven goods.

JG Summit Holdings Inc., the Gokongwei-owned listed conglomerate, for one, said the company continues to face challenges which include inflation.

At the same time, it welcomed improvements in second quarter results.

“While we continue to face the challenges arising from inflation and the weaker currency further exacerbated by tougher competitive dynamics, we are delighted to see improvements in our second quarter 2018 results,” said JG Summit president and CEO Lance Gokongwei.

He said the company continues to navigate this environment with the fundamentals of each of the businesses intact and issues are more “cyclical than structural.”

JG Summit reported a lower net income of P5.016 billion in the second quarter, 42 percent lower than the P7.131 billion posted a year ago.

This brought first half net income to P9.8 billion, down 48 percent from a year ago.

The group’s snack food business, Universal Robina Corp. posted a net income of P1.9 billion in the second quarter, down 35.5 percent “because of foreign exchange losses as a result of a weaker peso against the dollar, and higher selling and distribution costs.”

Hence, first half income was down by 23.1 percent to P4.8 billion.

Likewise, its airline business Cebu Air was affected by the “rise in fuel prices coupled with the weakening peso against the dollar and higher operating expenses.”

“From a 12 percent year-on-year growth in net income last first quarter, Cebu’s second quarter net income declined by 38.6 percent to P1.9 billion as the hedging gain was not enough to offset the lower operating income and net foreign exchange loss for the period. This resulted in first half net income of P3.3 billion, a 23.6 percent drop versus the same period last year,” it said in a report.

Another company, Shakey’s Pizza Asia Ventures Inc., the listed restaurant operator behind the iconic Shakey’s Pizza chain, reported growth in earnings in the second quarter and first half of the year, but growth was slower as a result of inflation pressures.

The company posted a net income of P212.4 million in the second quarter from P198.5 million and first half income of P396 million from P371 million a year ago, a slower increase of seven percent for both periods.

Shakey’s Pizza president and CEO Vicente Gregorio said that while there are a number of opportunities to maximize scale, increase efficiencies, and manage overhead to cushion cost pressures and meet double-digit earnings growth target for the year, there were a lot of challenges.

“We do expect managing higher input costs, a depreciating peso, and continuously rising inflation to remain a challenge in the short to medium term,” he said.

Aboitiz Equity Ventures Inc. also saw some of its businesses affected by rising inflation, higher fuel and power cost and the peso depreciation.

AEV’s net income for the first half stood at P10.1 billion, two percent lower than the P10.3 billion recorded last year.

“Our first half results reflect challenges that continue to test the resilience of our diversified portfolio,” said AEV president and CEO Erramon Aboitiz.

Pilmico Foods Corp. and its subsidiaries, for instance, reported a net income of P662 million for the first half, eight lower than the P717 million recorded last year, “due mostly to higher raw material costs.”

Republic Cement and Building Materials Inc.’s income contribution to AEV for the first half decreased by 91 percent to P44 million from P494 a year ago due to “increased fuel and power costs during the period.”

Inflation has been soaring on the back of rising global crude prices and new money from the new tax reform law as well as free tuition.