Revenue growth, but higher costs are squeezing profit. Can logistics offset declining profits in food and ingredients?

Consolidated revenue in the first quarter was ¥58,354 million and operating profit was ¥1,653 million, up 1.5% and down 26.4% year on year, respectively. The operating margin was approximately 2.8%, down 1.1 percentage points from approximately 3.9% a year earlier. Profit is declining despite revenue growth, so in the first-half results it will be necessary to assess how much of the cost increases were absorbed by the revenue gains from price increases and product specification revisions.

The operating profit bridge in the supplementary results materials shows a ¥2.92 billion negative impact from higher manufacturing costs, comprising ¥2.36 billion from raw material prices, ¥340 million from labor costs, and ¥220 million from utilities and logistics costs. Meanwhile, product specification revisions and revenue growth contributed ¥2.28 billion, while improved profitability at the Isesaki Plant contributed ¥580 million. In the first half, it will be important to compare the same itemized amounts to determine whether the negative impact of raw material prices simply expanded and whether the positive effects of an improved product mix and greater plant efficiency were replicated.

By segment, the food-related business posted revenue of ¥52,323 million, up 1.3% year on year, but profit of ¥1,516 million, down 28.3%. The ingredients-related business also posted revenue growth of 3.2% to ¥2,806 million, but profit fell 53.1% to ¥57 million, showing that revenue growth has not translated into profit. By contrast, the logistics-related business posted revenue of ¥3,223 million, up 2.6%, and profit of ¥309 million, up 23.7%, with the effect of revised rates for joint distribution relatively significant. As segment gross margins, SG&A expenses, and the breakdown between unit prices and volumes have not been disclosed, the first half will be monitored primarily for the extent of the declines in food and ingredients profits, the increase in logistics profit, and improvement from the 2.8% operating margin.