The Motley Fool

What Investors Should Know About SATS Ltd’s Latest Earnings

SATS Ltd (SGX: S58) reported its second quarter earnings yesterday. The reporting period was for 1 July 2014 to 30 September 2014.

SATS has two major business divisions, namely, Food Solutions and Gateway Services. The Food Solutions division covers airline catering, food distribution, industrial catering and other services. Meanwhile, Gateway Solutions is involved in ground handling services for passengers, flights, and cargo. You can also look up SATS’ first quarter earnings here.

With this as a backdrop, let’s dig into SATS’ latest quarterly results

Financial highlights

Here’s a rundown on SATS’s financial figures for the quarter ended 30 September 2014:

  1. Overall revenue for SATS slipped by 2.2% year-on-year to $442.2 million. This was caused by 4.7% less sales in the Food Solutions division which was partially offset by 2.1% higher revenue from Gateway Services.
  2. The decline in revenue brought about a 3.3% decrease in net profit to $47.1 million. Higher staff costs and lower contributions from associates and joint ventures had also heaped pressure on the bottom-line.
  3. SATS’s earnings per share (EPS) followed suit with a 2.3% decrease from 4.3 cents in the second quarter last year to 4.3 cents in the past quarter.
  4. Cashflow from operations came in at $25.4 million for the quarter with capital expenditure clocking in at $15.3 million. The level of capex gives SATS a solid $10.1 million in free cash flow.
  5. SATS’s board of directors declared an interim dividend of 5 cents per share, which was unchanged from the year before.
  6. As of 30 September 2014, the group had $338.4 million in cash and equivalents and $13.3 million in debt.

In short, SATS’s revenue and profit was more or less the same for this quarter. The food distribution outfit boasts a healthy balance sheet (high amounts of cash with negligible debt), with a good amount of free cash flow.

Operational highlights

The revenue decline from Food Solutions was due to weaker performance from SATS’ Japanese subsidiary (TFK), and loss of contributions from its divestment of its Australian subsidiary (Urangan Fisheries).

The company’s share of after-tax profits from its overseas associates and joint ventures also declined 8.5% year-on-year for the quarter due to higher pricing pressure and lower cargo volumes.

On the flipside, the 2.1% revenue growth from SATS’s Gateway Services segment was supported by growth in cargo tonnage in Singapore. To round out the quarter, management provided the statement below. The statement also touched on SATS’s future outlook:

Our operating landscape remains challenging given the ongoing pressures on regional aviation and rising manpower costs. Near-term regional aviation growth is also expected to be muted. We will continue to invest in our state-of-the-art facilities, comprehensive suite of services and new technologies to improve economies of scale and enhance connectivity for our customers.

We remain focused on growing new businesses and customer segments.”

Foolish summary

At its closing price yesterday of $3.03, SATS traded at around 19.4 times trailing earnings with a dividend yield of 4.3%.

To keep up to date on the latest financial and stock market news, sign up for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock Singapore. It will teach you how you can GROW your wealth in the years ahead. Also, like us on Facebook to follow our latest hot articles.

The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.