Orkla Reports Strong Growth Despite Market Challenges

image

Orkla Reports Strong Growth Despite Market Challenges

In the latest earnings report, leading branded consumer goods supplier Orkla demonstrated a strong financial performance with a 10% increase in adjusted earnings per share and a 17% rise in underlying EBITDA. CEO Nils Selte emphasized the company’s resilience despite high competition and inflationary pressures, noting significant contributions from eight of its ten portfolio companies.

Orkla (ticker: ORK) reported robust organic growth across various segments, particularly showing strong performance in the Baking and Sweet segments, along with notable improvements in EBITDA growth for Orkla Health and the European Pizza Company.

Key Points:

  • Adjusted earnings per share increased by 10%, while underlying EBITDA rose by 17%.
  • Organic growth occurred at 3.9%, supported by contributions from eight of its ten portfolio companies.
  • Total cash flow before capital allocations reached 4.9 billion NOK, representing a year-over-year increase of 2.1 billion NOK.
  • Interest-bearing debt stood at 18.3 billion NOK, with a net debt/EBITDA ratio of 1.8x.
  • Transition to a new operating model is expected to be completed by early 2024.
  • Management changes have been announced, with key executives set to retire in 2025 and operational restructuring starting on November 1.
  • Orkla is divesting its Hydro Power assets while aiming to maintain competitive pricing in the face of inflation.

Company Outlook: Orkla is making good progress towards implementing the new operating model by 2024. The company is focusing on maintaining competitive pricing, especially while managing market fluctuations and inflation in India. A sales process targeting the Hydro Power assets has been initiated to enhance efficiency.

Declining Factors: The intense competition from private labels continues to challenge the company. High cocoa prices have pressured chocolate demand, impacting the growth of Orkla Confectionery & Snacks. Although operational challenges at the biscuit factory have been resolved, they are expected to affect Q4 results.

Positive Indicators: Organic growth remained strong across various segments, with the Baking and Sweet segments seeing an 18% year-over-year increase in underlying EBITDA. Orkla Health achieved a 13% EBITDA growth supported by product launches and price increases. The European Pizza Company, including New York Pizza, reported a significant 23% EBITDA growth.

Shortcomings: Orkla India faced challenges in the domestic market during Q3, experiencing a softer sales growth of 3.3% due to high inflation impacting consumer confidence.

Q&A Highlights: BUBs have seen an increase in global demand and plans are in place to boost production volumes. Price increases in 2025 are expected to be lower than in previous years. Orkla is prepared to adjust prices in response to fluctuations in cocoa prices as necessary.

Despite inflation and competitive pressures, Orkla's robust performance reflects its strong market position and strategic initiatives. The next earnings report is eagerly anticipated, scheduled for release on February 13, with ongoing expectations of improvement.

InvestingPro Insights: Orkla's recent financial performance aligns with several key metrics and forecasts from InvestingPro. The company's market capitalization stands at $9.39 billion, reflecting its significant presence in the Food Products sector, supported by an InvestingPro Tip highlighting Orkla as a “leading player in the Food Products sector.”

The firm's revenue growth of 5.24% over the last twelve months and 4.34% in the latest quarter supports the mentioned organic growth amid challenging market conditions and inflationary pressures.

Orkla's profitability is demonstrated by a gross profit margin of 47.27% and an operating income margin of 10.54% for the past twelve months. These figures are consistent with the reported increases in adjusted earnings per share and underlying EBITDA.

An InvestingPro Tip emphasizes that Orkla has “maintained uninterrupted dividend payments for 33 years,” which is particularly significant given the company's strong cash flow performance referenced in the earnings report. The current dividend yield stands at 4.13%, showcasing an impressive dividend growth of 106.06% over the past twelve months, reflecting the company’s commitment to shareholder returns.

The stock's performance is noteworthy, achieving a total price return of 39.42% over the past six months. This is consistent with an InvestingPro Tip indicating “a significant price increase in the last six months,” reflecting investor confidence in Orkla’s strategic direction and financial outcomes.

For investors seeking a deeper understanding of Orkla's financial health and market position, InvestingPro offers six additional tips providing a comprehensive analysis of the company’s prospects and potential challenges.