SATS Ltd’s Latest Earnings: Strong Profit Growth Despite Lower Revenue

SATS Ltd (SGX: S58) reported its fiscal third-quarter earnings for the financial year ending 31 March 2016 (FY15/16) last Friday evening. The reporting period was for 1 October 2015 to 31 December 2015.

SATS has two major divisions, namely, Food Solutions and Gateway Services. The first division covers airline catering, food distribution, industrial catering, and other services. Meanwhile, Gateway Solutions is involved with ground handling services of passengers, flights, and cargo.

You can look up the results from the company’s previous quarter right here.

Financial highlights

The following’s a rundown on SATS’ latest financial figures:

  1. Quarterly revenue for SATS had slipped by 2.2% year-on-year to $441 million.
  2. Net profit attributable to shareholders, though, rose by 12.8% year-on-year to come in at $60.6 million. Lower cost of raw materials had helped to lift the bottom-line.
  3. Consequently, SATS’s earnings per share (EPS) rose by 14.6% from 4.8 cents a year ago to 5.4 cents.
  4. For the reporting quarter, cash flow from operations came in at $69.9 million with capital expenditures clocking in at $12.3 million. The lower capex gave SATS $57.6 million in free cash flow.  This is a healthy 24% increase from the free cash flow of $46.5 million ($58 million in cash flow from operations and $11.5 million in capex) seen a year ago.
  5. As of 31 December 2015, SATS had $416.8 million in cash and equivalents and $108.7 million in debt. The company’s balance sheet had improved from a year ago when there was $358.3 million in cash and equivalents and $101.8 million in debt.

In a similar manner to its past two fiscal quarters, SATS saw its profit climb despite its revenue dipping. The food catering giant also boasts a healthy balance sheet at the moment and has been generating a good amount of free cash flow.

Operational highlights

Revenue from the Food Solutions segment was down 7.1% year-on-year due to a weaker Japanese yen and the transfer of a certain food distribution business to SATS BRF, a joint venture company. These were offset by a steady showing in the Gateway Services segment, which saw year-on-year revenue growth of 5.3%.

To round out the quarter, SATS’s management had provided the following statements in the earnings release regarding the firm’s future outlook:

“Economic uncertainty and low consumer confidence across most of Asia suggest that the challenging operating environment will continue. However, our focus on raising productivity by adopting new technologies and driving economies of scale has prepared us well for these headwinds.

The long-term growth prospects for Gateway Services and Food Solutions are intact and we shall continue to expand our geographic presence in the region and build up into adjacent businesses, as demonstrated by our recent acquisition of a 49% equity stake in an airline catering company in Malaysia and our joint ventures in the travel retail business in Singapore and food supply business in China.”

Foolish summary

At its closing price last Friday of $3.84, SATS traded at 20 times trailing earnings and had a trailing dividend yield of 3.5%.

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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.