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Strauss Group reports stable sales as earnings and profits rise significantly

PETAH TIKVA, Israel – Strauss Group posted sales of NIS 2.07 billion in the quarter, reflecting a drop of 1.4% compared to the corresponding period; however, in organic terms and excluding foreign currency effects, sales increased by 1.7% ($1 = NIS3.48). As mentioned, the difference is primarily due to the impact of softer currencies in the coffee company’s countries of operations.

Giora Bardea, President and CEO of Strauss Group (TASE: STRS): “As an international group with operations in diverse categories and numerous countries, we have delivered another quarter of growth and improvement in earnings and profit margins in most of the Group’s businesses, in line with the trend of the past three years. We note that in the second quarter, similar to other international Israeli firms, Strauss was once again negatively impacted by the appreciation of the shekel against foreign currencies, with most of this effect applying to international revenues of the coffee company. The Group’s other businesses – Strauss Israel, Sabra and Strauss Water – delivered growth and continued improvement in earnings and profit margins.”

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In terms of earnings and profit margins Strauss Group has delivered another strong quarter, with an increase in profit and improved profit margins for the Group and the subsidiaries, mainly thanks to continued innovation and long-term productivity implementations. The Group’s gross profit in the quarter was approximately NIS 822 million, accounting for 39.6% of sales, compared to a gross profit margin of 38.7% in the corresponding quarter last year and reflecting an improvement of 1.1% in gross profit.

The operating profit margin in the quarter was 11% of sales and amounted to NIS 227 million, compared to NIS 207 million in earnings and an EBIT margin of 9.9% in the second quarter of 2018, reflecting an improvement of 9.4% in operating profit.

On the bottom line, the Group concluded the second quarter of 2019 with a net profit of NIS 121 million, an increase of 9.5% over the corresponding period last year. The improvement in net profit is the result of the increase in operating profit.

In the first half-year, the Group’s revenue amounted to NIS 4.18 billion, reflecting 0.8% organic growth excluding foreign currency effects; gross profit was NIS 1.67 billion – 39.9% of sales compared to 38.5% of sales in the corresponding period. The EBIT in the half-year was NIS 496 million, 11.9% of sales, reflecting an improvement of 7.4% compared to the corresponding period last year. Strauss Group’s net profit was NIS 293 million, an improvement of 13.6% compared to the net profit in the first half of 2018.

Strauss Israel continued the positive momentum, with sales rising by approximately 3.3% to NIS 803 million. The company’s business in the second quarter was mainly influenced by continued growth in the yogurt and milk beverage category under the Pro brand, and by the start of distribution of Arla products (butter and cheeses), continued growth of the bakery category, Energy healthy snacks products and salty snacks led by Tapuchips. The Taam Teva and Yad Mordechai brands also delivered strong growth.

Strauss Israel’s gross profit in the quarter was NIS 316 million – 39.3% of sales – compared to 38.6% in the corresponding period last year. Operating profit rose from approximately NIS 69 million in the second quarter of 2018 to NIS 80 million in the second quarter of 2019, reflecting margins of 8.9% and 10%, respectively. The improved margins were achieved mainly as a result of the sales mix, which was based on new launches in numerous categories while targeting different, and new, consumer publics, and the ramp-up of productivity processes initiated several months ago, particularly at the company’s manufacturing sites, following investments in technology and various operational enhancements.

Strauss Coffee delivered sales growth in Israel and Brazil (in local currency) during the second quarter, whereas the coffee company’s business in Eastern Europe experienced a challenging quarter. Sales by the Três Corações joint venture in Brazil [2] grew by 1.7% in local currency and amounted to NIS 470 million (the Group’s share 50%), while significantly increasing sales volumes and growing the company’s market share from 27% in the corresponding period to 28.4% in the second quarter this year (according to A.C. Nielsen figures). Gross profit and profitability in local currency also rose; however, the 7.9% depreciation of the Brazilian currency eroded shekel income in the quarter by 6.1% compared to the corresponding quarter. The company’s sales were also impacted by the drop in green coffee prices in Brazil.

The coffee business in Eastern Europe posted a drop in sales, mainly as a result of the softer currencies in the region as well as increased competition in those countries. In Israel, Strauss Coffee continued to grow, mainly as a result of an increase in sales volumes.

In total, the coffee business yielded revenue of approximately NIS 913 million in the quarter – a drop of 6.6% compared to the corresponding period last year. Excluding foreign currency effect, the drop in revenue amounted to 1.3%.

Strauss Water delivered another strong quarter of growth with NIS 159 million in sales, an increase of 6% compared to the corresponding period. Strauss Water’s operating profit, which includes the Group’s share of the net profit of the joint venture with Haier Group in China, HSW, amounted to NIS 19 million, 11.9% of sales compared to 11.3% in the corresponding period. The business in China delivered sales of approximately NIS 141 million (100%) in the second quarter, similar to sales in the corresponding period. Excluding foreign currency effects, sales increased by 5.7% compared to the corresponding period. HSW is presently active only in the POU (point of use) segment, which consists of filters and purifiers installed inside homes.

Given the joint venture’s interest in expanding into additional categories in the water business, including the point of entry (POE) category (point of entry filtration and purification systems treat the water as it enters the home by connecting directly to the water line, improving water quality for general use and not only for consumption), in the second quarter the HSW joint venture entered into a distribution agreement for POE products manufactured by a company owned by Haier Electronics (which holds 51% of the HSW joint venture) and BWT.

These filtration and purification systems filter the water as it enters the home by connecting directly to the water line and provide an overall water purification solution for