Strauss Group: wraps up Q3-2022 with 7% organic growth

Petach Tikva / IL. (sg) Israel’s Strauss Group Limited published its financial statements for the third quarter of 2022. In the quarter, the Company recorded an increase of 7 percent1 in revenue, which amounted to NIS 2.5 billion. In the first nine months of 2022, revenue totaled NIS 7 billion, up 7.6 percent1. The increase is largely due to sales growth in the coffee company in Brazil and Eastern Europe as well as continued growth in the water company but was offset by the drop in sales by the Confectionery Division and Sabra, both of which operated partially in the past several months.

The consequences of the confectionery recall and the adjustment plan in Sabra, as well as the rising costs of raw materials, mainly raw milk, green coffee, packaging materials and shipping and transportation costs, led to a 9.9 percent drop in gross profit, which was NIS 746 million in the quarter (gross margin of 30 percent). These circumstances also caused a drop in operating profit, which amounted to NIS 111 million, down 63.3 percent compared to the corresponding period last year. Income attributable to shareholders in the quarter was NIS 35 million, reflecting a drop of 82.4 percent compared to the corresponding quarter of 2021.

In an immediate report issued this morning, the company updated the estimated damage to its net profit for 2022 due to the recall event and the shutdown of the plant to a range of NIS 290-310 million.

Chief Executive’s Commentary

CEO Giora Bardea: «Strauss Group delivered growth in most of its businesses, other than the confectionery category in Israel and International Dips and Spreads. At the same time, coping with inflation and considerable increases in raw material prices, as well as Sabra’s gradual return to the market and the suspension of confectionery operations have led to margin erosion. Strauss Coffee posted a quarter of strong performance, Strauss Water is growing admirably, and Strauss’s food and beverage business in Israel, excluding confectionery, is maintaining market share and continues to grow nicely. In recent weeks, we have continued to implement the strategic plan we announced last March. We also announced the extension of our partnership agreement with the Lima family in Brazil for another twenty years and kicked off the Group’s restructuring plan in the Israel geography. I am currently handing over leadership of the Group to Shai Babad and will assist him in assuming the position.»

Development of business areas in Q3-2022

Strauss Israel wrapped up the quarter with NIS 871 million in revenue, down 10.7 percent, largely the result of a 47 percent drop in sales by the Fun and Indulgence segment, which amounted to NIS 143 million in the quarter due to the confectionery recall.

The Company’s market share in the dairy, fresh foods, salty snacks and Yad Mordechai categories grew in the first nine months of 2022. Sales by the Health and Wellness segment were up 3.2 percent in the quarter and amounted to NIS 728 million, mainly due to growth in sales of dairy products and dairy alternatives. Rising raw material prices, notably the «target price» of milk, eroded the segment’s operating profit, which amounted to NIS 66 million, and the operating margin was 9 percent compared to 13.6 percent in the corresponding period last year.

Strauss Coffee delivered an outstanding quarter, with NIS 1.3 billion in revenue and 37.3 percent growth across all geographies. In Israel, the coffee company’s revenue was NIS 200 million, reflecting 15.7 percent growth compared to the corresponding period last year. In Brazil, sales soared 33.6 percent to NIS 697 million, largely the result of a price update introduced this year. The Três Corações coffee company holds a 32.5 percent share of the roast and ground coffee market in Brazil, compared to 30.6 percent in the corresponding period. An agreement was recently signed with the partners in the joint venture to extend the successful partnership, which has created exceptional shareholder value throughout the years, for a further twenty years. The coffee business in Europe delivered an especially strong quarter, with sales growth2 of 67 percent in Russia and Ukraine and 23.5 percent in Poland.

Sabra continues its growth process after the implementation of the adjustment plan at the plant in Virginia. The company, whose activity was largely suspended in the first half of 2022, has resumed full-scale manufacturing operations and has recently regained a 34.8 percent share of the hummus market in the USA, whereas in the corresponding period last year its market share was 61 percent. Sales in the third quarter amounted to NIS 82 million (reflecting 50 percent ownership), down 47.6 percent, and the operating loss was NIS 36 million (50 percent ownership). The Company estimates that Sabra will reach operating break-even by the end of the fourth quarter. Obela, which is active in dips and spreads in other regions, wrapped up the third quarter with NIS 22 million in revenue (50 percent ownership), reflecting 8.2 percent growth.

Strauss Water continued to grow commendably in the third quarter as well. The company’s sales amounted to NIS 210 million – an increase of 9.1 percent – largely thanks to growth in the installed base and in sales of new appliances. The business in China continues to be impacted by COVID-19 but grew2 4.7 percent to NIS 161 million (reflecting 100 percent ownership) in the quarter. The business in the U.K. is expanding, and the company recently launched the new and advanced «edge» water bar series.

The Kitchen FoodTech Hub launched its second incubator in October. In addition, as of September 30, 2022, the total value of investments in the FoodTech incubator, as stated on the company’s balance sheet, amounted to NIS 138 million. The fair value of these investments on the above date was NIS 556 million, compared to NIS 326 million on September 30, 2021.