Can domestic mushrooms continue to deliver price-led revenue and profit growth?

In Q1, the domestic mushroom business generated revenue of ¥12,095 million, up 2.6% year on year, and segment profit of ¥673 million, up 47.7%. According to the company’s explanation, firm mushroom prices, partly due to adverse weather, and cost reductions drove the increases in revenue and profit. Accordingly, the improvement appears to have resulted less from a simple increase in sales volume than from a combination of higher selling prices and cost control.

By product, average selling prices were 102.8% of the prior-year level for beech mushrooms, 108.5% for eryngii mushrooms, 107.5% for maitake and 105.7% for shimeji hiratake, exceeding the prior-year level for all 4 products. Production volumes, however, were 99.4% for beech mushrooms, 93.9% for eryngii mushrooms, 94.9% for maitake and 110.7% for shimeji hiratake. Volumes declined for 2 of the 3 core products. While the pattern of higher prices offsetting lower volumes supports margins, sales and profit could both fall short if market prices weaken.

Actual production volumes were also disclosed: 10,695 tonnes for beech mushrooms, 3,877 tonnes for eryngii mushrooms and 3,516 tonnes for maitake. Shimeji hiratake production was 110.7% of the prior-year level and its average selling price was 105.7%, making it stronger than the other products on both volume and price. However, the domestic mushroom business has the prior-year first-half comparison of ¥23,273 million in revenue and ¥320 million in segment profit, so the next results will need to show whether the Q1 profit improvement is sustained on a cumulative first-half basis.

At the interim results, it will be important to see whether average selling prices and production volumes by product continue to be disclosed, and whether the higher prices reflect vegetable market conditions, weather, production adjustments or marketing. In particular, if prices soften before eryngii production improves from 93.9% of the prior-year level and maitake production from 94.9%, the domestic mushroom business’s margin could decline from the Q1 level.