The Inghams Group Ltd (ASX: ING) share price fell 5.1% yesterday with the chicken producer announcing the closure of a processing plant following positive COVID-19 tests. The Thomastown Further Processing Plant in Victoria has been temporarily closed after five employees at the plant tested positive for coronavirus.
Ingham’s advised that it has had contingency plans in place for plant closures for some months. Other sites across Australia remain in operation. The temporary closure is not expected to materially impact the businesses results in FY21. Although the company is yet to announce FY20 results, in May it reported it was on track for 2H FY20 underlying EBITDA to exceed 1H FY20. Nonetheless, Ingham’s warned at the time that it would be premature to draw conclusions as to the trading results for the final weeks of FY20 given changes in volume and channel mix across the business.
Impact of coronavirus
COVID-19 restrictions created a temporary surge in retail sales in March and early April but as consumer behaviour normalised, store traffic subsided. Ingham’s has advised that out of home consumption of poultry products has been negatively impacted by the pandemic. Major customers have been resilient but their operations have been restricted to drive through and home delivery. Customers supplying hospitality and tourism industries have reduced purchases leading to weaker conditions in the food service and wholesale markets.
Ingham’s CEO and Managing Director, Jim Leighton, said in early May, “COVID-19 has presented unprecedented challenges and we have executed a swift realignment of our supply chain and operations in order to manage any substantial operational issues created by required social distancing protocols in our facilities. This has created additional complexity, inefficiency, and cost and the temporary suspension of the production of some value enhanced products.”
Inghams share price outlook
The Ingham’s share price remained fairly resilient in the March downturn, falling 18% from its February high of $3.76 to its March low of $3.06. It has now partially recovered to trade at $3.34. Ingham’s says it has a strong balance sheet with good access to liquidity and funding. There is significant headroom in debt covenants and the company says it is well supported by its lenders. Measures have been implemented to manage costs including reducing discretionary spend and capital expenditure. As a food business, demand for Ingham’s products is less variable than for more discretionary purchases. Demand from the hospitality industry is currently subdued, but this should lift with the easing of restrictions.
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Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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