Li & Fung 39% Profit Growth Misses Analyst Estimates (Update1)
2010-03-25 00:35:35.734 GMT
(Adds stock-rating downgrades in fourth paragraph.)
By Wing-Gar Cheng
March 25 (Bloomberg) -- Li & Fung Ltd., the biggest supplier to retailers including Wal-Mart Stores Inc., reported lower-than-expected profit and the first annual sales drop in at least 18 years after the global recession damped consumer spending.
Net income last year rose 39 percent to HK$3.37 billion
($434 million), Li & Fung said in a statement to Hong Kong’s stock exchange yesterday. That missed all nine forecasts in a Bloomberg survey of analysts who had a mean estimate of HK$3.75 billion. Sales fell 6 percent to HK$104.5 billion, the first decline since the company’s initial public offering in 1992.
“They missed the estimates because the global economic environment was very bad,” Francis Lun, general manager at Fulbright Securities Ltd. in Hong Kong, said in an interview yesterday. “But Li & Fung had been smart, they managed to buy assets at cheap valuations and with the pick-up in demand this year, they will do well.”
The outsourcer, whose 29 percent gain makes it the best performer on the benchmark Hang Seng Index this year, was downgraded by at least three brokerages after the earnings report. Li & Fung’s stock rating was cut to “underweight”
from “neutral” at JPMorgan Chase & Co. and downgraded to “neutral” from “buy” at UBS AG. Morgan Stanley cut its rating on the stock to “equal weight” from “overweight.”
The outsourcer declined 0.7 percent to HK$41.75 in Hong Kong trading yesterday.
‘Expensive’ Stock Price
“The company is cash rich and still looking for acquisitions, it’s a good position to be in,” said Lun. “But the market has already priced their growth and it’s reflected in their stock price, which is expensive.”
The company’s earnings per share last year rose to 91 Hong Kong cents from 69 Hong Kong cents in 2008.
Li & Fung has set a sales target of $20 billion this year and has been acquiring rivals and signing outsourcing pacts, including one with Wal-Mart that may generate an additional $2 billion of revenue in the first year.
“If you look at all the outsourcing deals we did, some of the acquisitions we did, everything is coming together in a very positive way at the same time for our company,” President Bruce Rockowitz said at a briefing in Hong Kong yesterday.
“This will be the best year for our company.”
Deflation, Bankruptcies
Revenue last year fell about HK$51 billion short of the 2010 target. Managing Director William Fung said sales would have grown 1 percent if not for price deflation of 9 percent and client bankruptcies.
The 9 percent decline in prices last year was the worst the company has experienced, Rockowitz said.
The outsourcer, whose biggest shareholders are billionaire brothers Victor and William Fung, still has “lots of opportunities to buy” and has $500 million left in its acquisition fund, he said.
“U.S. retail sales are recovering but it isn’t buoyant and Li & Fung needs acquisitions to retain growth,” Renee Tai, an analyst at CIMB-GK Securities HK Ltd. said before the earnings announcement. Tai has a “neutral” rating on Li & Fung.
Liz Claiborne, Visage
Last year, the company announced four acquisitions that included Liz Claiborne Inc.’s sourcing business for $83 million and the purchase of units owned by New York-based Wear Me Apparel LLC for as much as $401.8 million. Last month it agreed to pay as much as 173 million pounds ($261 million) to buy Visage Group Ltd., a private-label apparel supplier to U.K.
retailers.
The Hong Kong-based supplier will focus on footwear and health and beauty companies when making purchases, William Fung said yesterday.
“We’re really expecting a return to a strong top-line growth in 2010,” Fung said yesterday. “The margins will tend to trend up because we’re growing very strongly in America and in Europe.”
Operating costs dropped 2.4 percent last year or by 14.4 percent excluding the acquired businesses, Fung said. Operating profit rose 29 percent to HK$3.99 billion and “total margin”
widened to 12.17 percent from 10.86 percent, according to the earnings statement.
Workforce Cut
Total number of workers fell to 13,402 from 14,438, the first decline in at least 11 years. The percentage of its employees based abroad increased to 77 percent from 75 percent.
While Li & Fung sourced 54 percent of goods from China in 2009, Bangladesh and Vietnam are getting “very competitive,”
Fung said. The company will continue to “drive our cost base down” and increase cost efficiencies, he added.
Sales to the U.S. represented 64 percent of the total compared with 62 percent in 2008, and Europe contributed 27 percent. U.S. retail sales unexpectedly rose 0.3 percent in February, the fourth gain over the past five months, Commerce Department data shows.
Li & Fung proposed a final dividend of 49 Hong Kong cents compared with 33 HK cents a year ago.
The company’s other clients include Inditex SA’s Zara, Target Corp., Macy’s Inc., Kohl’s Corp., Marks & Spencer Group Plc and Esprit Holdings Inc.
2010-03-25 00:35:35.734 GMT
(Adds stock-rating downgrades in fourth paragraph.)
By Wing-Gar Cheng
March 25 (Bloomberg) -- Li & Fung Ltd., the biggest supplier to retailers including Wal-Mart Stores Inc., reported lower-than-expected profit and the first annual sales drop in at least 18 years after the global recession damped consumer spending.
Net income last year rose 39 percent to HK$3.37 billion
($434 million), Li & Fung said in a statement to Hong Kong’s stock exchange yesterday. That missed all nine forecasts in a Bloomberg survey of analysts who had a mean estimate of HK$3.75 billion. Sales fell 6 percent to HK$104.5 billion, the first decline since the company’s initial public offering in 1992.
“They missed the estimates because the global economic environment was very bad,” Francis Lun, general manager at Fulbright Securities Ltd. in Hong Kong, said in an interview yesterday. “But Li & Fung had been smart, they managed to buy assets at cheap valuations and with the pick-up in demand this year, they will do well.”
The outsourcer, whose 29 percent gain makes it the best performer on the benchmark Hang Seng Index this year, was downgraded by at least three brokerages after the earnings report. Li & Fung’s stock rating was cut to “underweight”
from “neutral” at JPMorgan Chase & Co. and downgraded to “neutral” from “buy” at UBS AG. Morgan Stanley cut its rating on the stock to “equal weight” from “overweight.”
The outsourcer declined 0.7 percent to HK$41.75 in Hong Kong trading yesterday.
‘Expensive’ Stock Price
“The company is cash rich and still looking for acquisitions, it’s a good position to be in,” said Lun. “But the market has already priced their growth and it’s reflected in their stock price, which is expensive.”
The company’s earnings per share last year rose to 91 Hong Kong cents from 69 Hong Kong cents in 2008.
Li & Fung has set a sales target of $20 billion this year and has been acquiring rivals and signing outsourcing pacts, including one with Wal-Mart that may generate an additional $2 billion of revenue in the first year.
“If you look at all the outsourcing deals we did, some of the acquisitions we did, everything is coming together in a very positive way at the same time for our company,” President Bruce Rockowitz said at a briefing in Hong Kong yesterday.
“This will be the best year for our company.”
Deflation, Bankruptcies
Revenue last year fell about HK$51 billion short of the 2010 target. Managing Director William Fung said sales would have grown 1 percent if not for price deflation of 9 percent and client bankruptcies.
The 9 percent decline in prices last year was the worst the company has experienced, Rockowitz said.
The outsourcer, whose biggest shareholders are billionaire brothers Victor and William Fung, still has “lots of opportunities to buy” and has $500 million left in its acquisition fund, he said.
“U.S. retail sales are recovering but it isn’t buoyant and Li & Fung needs acquisitions to retain growth,” Renee Tai, an analyst at CIMB-GK Securities HK Ltd. said before the earnings announcement. Tai has a “neutral” rating on Li & Fung.
Liz Claiborne, Visage
Last year, the company announced four acquisitions that included Liz Claiborne Inc.’s sourcing business for $83 million and the purchase of units owned by New York-based Wear Me Apparel LLC for as much as $401.8 million. Last month it agreed to pay as much as 173 million pounds ($261 million) to buy Visage Group Ltd., a private-label apparel supplier to U.K.
retailers.
The Hong Kong-based supplier will focus on footwear and health and beauty companies when making purchases, William Fung said yesterday.
“We’re really expecting a return to a strong top-line growth in 2010,” Fung said yesterday. “The margins will tend to trend up because we’re growing very strongly in America and in Europe.”
Operating costs dropped 2.4 percent last year or by 14.4 percent excluding the acquired businesses, Fung said. Operating profit rose 29 percent to HK$3.99 billion and “total margin”
widened to 12.17 percent from 10.86 percent, according to the earnings statement.
Workforce Cut
Total number of workers fell to 13,402 from 14,438, the first decline in at least 11 years. The percentage of its employees based abroad increased to 77 percent from 75 percent.
While Li & Fung sourced 54 percent of goods from China in 2009, Bangladesh and Vietnam are getting “very competitive,”
Fung said. The company will continue to “drive our cost base down” and increase cost efficiencies, he added.
Sales to the U.S. represented 64 percent of the total compared with 62 percent in 2008, and Europe contributed 27 percent. U.S. retail sales unexpectedly rose 0.3 percent in February, the fourth gain over the past five months, Commerce Department data shows.
Li & Fung proposed a final dividend of 49 Hong Kong cents compared with 33 HK cents a year ago.
The company’s other clients include Inditex SA’s Zara, Target Corp., Macy’s Inc., Kohl’s Corp., Marks & Spencer Group Plc and Esprit Holdings Inc.
