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These 2 Companies Announced Weaker Quarterly Earnings Results Recently

We are currently in the earnings season. As is common with every earnings season, there will be some companies posting growth, some posting mixed numbers, and some experiencing declines. Let’s take a look at two companies that delivered weaker results recently:

1. On 8 November 2018, Japan Foods Holding Ltd (SGX: 5OI) released its second quarter earnings update for its fiscal year ending 31 March 2019 (FY2019). The reporting period was from 1 July 2018 to 30 September 2018.

As a quick background, Japan Foods runs many different Japanese restaurant brands, such as Ajisen Ramen, Osaka Ohsho, Menya Musashi, and more. Singapore is the company’s key market, but it has also expanded beyond to Hong Kong, Indonesia, Malaysia, Mainland China, and Vietnam.

In the reporting quarter, Japan Foods experienced a 0.7% year-on-year decline in revenue to S$16.6 million. Similarly, gross profit slipped by 1.7% to S$14.0 million. Net profit for the quarter fell even more, down 51.9% year-on-year to S$0.6 million. The company’s revenue fell because of weak consumer sentiment, while net profit was further impacted by higher cost of sales and expenses from newly opened stores.

Japan Foods had no borrowings as of 30 September 2018, while its cash and equivalents stood at S$19.4 million. The company proposed an interim dividend of 0.80 cents per share, unchanged from a year ago.

In its latest earnings update, Japan Foods shared the following useful comments on its outlook:

“The operating environment in the local food and beverage industry is expected to remain challenging in the next 12 months due to intense competition, tight labour supply, rising business costs and uncertain economic outlook.

The Group will continue to focus its efforts in controlling raw material costs, improving operational efficiency via streamlining of work processes and technology and practising good restaurant portfolio management taking into account market demand and individual restaurant’s profitability.

The Group recently secured the franchise rights of “Konjiki Hototogisu” which is an award winning ramen brand featured in Michelin Guide Tokyo’s Bib Gourmand for four consecutive years from 2015 to 2018. The first restaurant under this brand opened at CHIJMES in June 2018. The Group has also secured the franchise rights of “Kagurazaka Saryo”, an established Japanese tea house and dessert shop from Tokyo, Japan. The first restaurant under this brand opened at Vivo City in July 2018. The response from customers for these two new brands has been encouraging. Subject to general economic conditions, availability of suitable locations and other business considerations, the Group intends to open more restaurants under “Konjiki Hototogisu” and “Kagurazaka Saryo” brands in future. The Group will continue to explore opportunities to acquire new brands and expand its portfolio of restaurants.”

2. Next up I have, Singapore Telecommunications Limited (SGX: Z74), which also released its second quarter earnings update for its fiscal year ending 31 March 2019 (FY2019) on 8 November 2018. The reporting period was from 1 July 2018 to 30 September 2018.

Singapore’s largest telco reported flat revenue of S$4.3 billion for FY2019’s second quarter. Yet, EBITDA (earnings before interest, taxes, depreciation, and amortisation) for the quarter declined by 10.3% year-on-year to S$1.13 billion. Singtel’s share of associates’ pre-tax earnings was also down by 49% year-on-year to S$330 million excluding exceptional items. Consequently, Singtel’s net profit declined by 76.6% to S$667 million. Even if one-off gains and expense were removed, the telco’s underlying net profit would still be down by 21.8% year-on-year to S$715 million on the back of weaker performances in Singtel’s core businesses, and the aforementioned fall in associates’ earnings.

Nonetheless, Singtel managed to declare an interim dividend of S$0.068 per share for the reporting quarter, unchanged from a year ago.

For the whole of FY2019, Singtel expects revenue from its core business to grow in a “low single digit” range, and for EBITDA “to be stable.” It also expects free cash flow (excluding spectrum payments and dividends from its associates) of S$1.9 billion for the year; dividends from its associates are expected to hit S$1.4 billion.

Chua Sock Koong, Singtel’s CEO, also shared some useful comments on the current state of the company’s business in the latest earnings update:

“Our industry continued to face various headwinds and intense competition. Notwithstanding these challenges, the half-year results reflect the resilience of our business with continued focus on networks, differentiated content, unique capabilities and innovative plans. We continued to add postpaid mobile customers across both Singapore and Australia and improved our customer retention rate. We affirm our full-year guidance despite a more challenging economic outlook. While ICT revenue was lower in the first half of the year with the completion of a major infrastructure project last year, our order book is strong and we expect ICT to grow in the second half.”

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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 Lawrence Nga doesn’t own shares in any companies mentioned.