Release Date: August 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- CJ CheilJedang Corp (XKRX:097950, Financial) reported a 14% growth in operating profit (OP) in Q2 2024 in South Korea.
- The company's US operations solidified their number one market position with strong growth in products like Mondeo and pizza.
- High-margin products in the bio segment, such as trip defense and specialty amino acids, saw increased sales and improved margins.
- CJ Logistics, a subsidiary, reported a 3% year-over-year increase in sales and a 12% increase in OP.
- The company is actively expanding its market presence in Europe and Oceania, with significant growth in these regions.
Negative Points
- Sales in the food segment decreased by 1% year-over-year, impacted by a slowdown in the US, China, and Japan.
- Operating profit in the food segment dropped by 5% year-over-year due to reduced consumer spending in Korea and a challenging divestiture.
- Feed and care sales declined by 12% year-over-year, affected by market contraction and profit-focused operations.
- SG&A expenses increased, with transportation costs rising by KRW12.1 billion, impacting overall profitability.
- The company anticipates a continued consumption slowdown in Korea, which could affect future sales and profitability.
Q & A Highlights
Q: Can you provide more details on the performance of the US market, particularly regarding high-margin products?
A: (Kyoung Suk Kang, CFO & Head of Finance Strategy) The US market saw significant growth, especially in high-margin products like Mondeo and pizza. This growth was balanced across various channels, including B2C and K12. The strong performance in these segments helped solidify our number one position in the market.
Q: What were the key drivers behind the 14% OP growth in Q2 2024 in South Korea?
A: (Kyoung Suk Kang, CFO & Head of Finance Strategy) The OP growth was driven by increased sales of processed foods, despite a decline in domestic spending. Product competitiveness and sophisticated sales and channel strategies played a crucial role. Additionally, high-margin products in the bio sector and margin improvements in feed and care contributed significantly.
Q: How did the European and Oceania markets perform in Q2 2024?
A: (Kyoung Suk Kang, CFO & Head of Finance Strategy) Sales in Europe accelerated, particularly in the mainstream channels, and London sales went up in Australia. This propped up the high growth in both Europe and Oceania. The expansion into ethnic and mainstream channels in Europe drove significant growth, with a 40% increase in sales year-over-year.
Q: Can you elaborate on the performance of the bio business unit?
A: (Jang Young Kim, Head of Bio Business Management) The bio business saw growth in high-margin products like trip defense, specialty amino acids, and taste and reach. OP was KRW99 billion, up 17% year-over-year. The product mix improved, thanks to the increased share of high-margin products, stabilizing the profit fluctuation of bulky amino acids.
Q: What were the main factors affecting the feed and care business?
A: (Hwang Hyeon-ju, Head of Feed and Care Business Planning) Sales declined due to decreased feed and livestock sales volumes. However, OP increased due to the rebound of livestock prices and productivity improvements in Southeast Asia. The market contraction in Indonesia and Vietnam affected sales, but profitability improved due to optimized broiler production sites and streamlined COGM.
Q: How did CJ Logistics perform in Q2 2024?
A: (Kyoung Suk Kang, CFO & Head of Finance Strategy) CJ Logistics saw both sales and OP growth, driven by increasing volumes in our global e-commerce platform and productivity improvements. Sales in Q2 rose by 3% year-over-year to KRW3.592 trillion, and OP grew by 12% year-over-year to KRW125.4 billion.
Q: What are the key strategies and outlook for the food business in Q3 2024?
A: (Geun-yeong Jung, Head of Food, Korea Business Planning) We aim to mitigate the impact of the consumption slowdown in Korea by promoting gift sets for the Chuseok holiday, optimizing pricing and volume operations, and expanding online channels. In the US, we plan to strengthen our market share in pizza and leverage brand awareness to expand GSP categories. In Europe and Australia, we will expand channels from ethnic to mainstream, using the Paris Olympic Games to boost brand awareness.
Q: What sustainability efforts has CJ CheilJedang undertaken?
A: (Kyoung Suk Kang, CFO & Head of Finance Strategy) We have implemented an up-cycling system to promote the recyclability of heparin containers. These containers are collected, washed, and transformed into final upcycled products. We have partnered with various companies to create sustainable daily supplies and fashion items, enhancing consumer awareness of up-cycling.
Q: What is the outlook for the bio business unit in the coming quarters?
A: (Jang Young Kim, Head of Bio Business Management) We anticipate improved performance due to favorable market conditions and strategic sales initiatives. The recovery in demand for premium flavor ingredients and the emergence of new customers will drive sales. We also expect to boost profits by recovering T&R demand and venturing into new markets.
Q: How does CJ CheilJedang plan to address the challenges in the Chinese and Japanese markets?
A: (Geun-yeong Jung, Head of Food, Korea Business Planning) We plan to reorganize product offerings, channels, and structure through a select and focused approach to stabilize sales and improve profitability. This includes optimizing our business operations and focusing on profitable and differentiated products.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
