FFI, TSI, and A2M: ASX food stocks with gloomy results fuelled by inflation

Highlights

There has been a steep rise in food prices on a global basis.
COVID-19 caused a temporary disruption in food production as well as logistics.
Rising inflation in Australia has created a stressful environment for the food business with declining profit margins despite high sales revenues.

Globally, there has been a sharp rise in food prices. According to the Food and Agriculture Organization (FAO) Food Price Index, prices of major food items nearly climbed to a record high in January.

COVID-19 led to a temporary disruption in food production and logistics, which is now recovering. This led to a sharp rise in food costs in 2021. The food price index increased by 28.1% in 2021 compared to that of 2020, which has developed a fear for another global food crisis, affecting poor and developing countries around the world.

In Australia, inflation is currently at its 11-year high. This has created a stressful environment for the food business with declining profit margins despite high sales revenues. In this article, we will talk about three food stocks listed on the ASX and their income statements for the first half of the fiscal year 2022 (period ending 31 Dec 2021).

FFI Holdings Limited (ASX: FFI)

FFI deals in the bakery and pastry cook industries along with fresh sausages, bacon, and confectionery products. The company’s revenue from ordinary activities increased by 1.5%. However, its net profit after tax dropped by 40.3%. The company attributes the reduced profits to challenging trading circumstances during the period. It has faced a remarkable increase in costs of inputs such as raw materials, freight, and labour.

The company remains optimistic about its prospects and is reviewing the issues that affected profit margins during the half year. Its 90% dividend payout ratio reflects its strong confidence in the business.

Stock information: FFI stock was trading at AU$6.300 on 02 March.

Also read: Halo Food (ASX: HLF) to acquire The Healthy Mummy

Top Shelf International Holdings Limited (ASX: TSI)

Top Shelf International is a distiller and marketer of premium Australian Spirits. It also provides services like canning, bottling, and packaging. The company is creating Australia’s first agave spirit range.

The company experienced a robust COVID-19 bounce back in last few months of 2021 due to increasing demand for their contract packaging services. In FY22 1H, the company grew 57% in revenue compared to the prior corresponding period (pcp). Its gross margin also increased by 21.6% in the same period. However, the company reported a loss after tax, which increased by 42% compared to pcp.

Stock information: The last trading price of TSI as on 02 March was AU$ 1.650.

The a2 Milk Company Limited (ASX: A2M)

A2M is a nutritional dairy company focused on products containing A2 beta-casein protein. It has trading operations in New Zealand, Australia, Greater China, North America, and other evolving markets.

The company’s revenue in 2H22 is expected to be significantly higher than 2H21. However, the improved revenue is not expected to translate into higher earnings in FY22 as the company increases its investment for further growth.

Stock information: The trading price of FFI as on 02 March was AU$6.30.

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