Celestial Nutrifood 2008 Q2 result

Soy bean price has risen a lot together with other commodity price. Let's look at how Celestial is doing.

Sales +37.1%
Cost of sales +46.5%
Gross profit +22.2% (cost increase faster than sales)
Distribution and Administrative expenses +53.8% and +44.3% respectively
Income tax +50%
Net profit +11.7% (clearly the high cost and tax weight the profit down)
Cashflow before working capital change +14.7% (the business is generating strong cash)
EPS increase slightly to 0.17 RMB

When we look at the sales mix, the industrial product sales grow faster. Gross profit margin dropped because of the higher raw material price and change of sales mix. Group has put in measure to mitigate the cost pressure. Selling price of most health food and beverage increased more than 20%, yet it still achieve growth, this might signal better pricing power.

There is increased plant utilisation of industrial protein business. Biochemical feedstuff and lecithin business also achieved strong growth. The component of cost increase include advertising and promotion, transportation and other distribution expense. The intense competition could be another reason. The administrative expense include donation to Sichuan earthquake, otherwise it would be lower. Increase in income tax also erode the earning.

The directors believed high raw material cost continue be a concern. The group is to launch four new health food and beverage in 2008.

The group continue to grow despite rising raw material cost. They also managed to increase price without affect the sales severely. Overall, it is a good result. Since the price of commodity is on down trend now, there is high change Celestial would do even better in the coming quarter. It does look interesting at this level.