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Thai Union Expects A Turnaround In The Third Quarter

Thai Union Frozen Products (TUF), the leading global seafood expert did poorly in the first quarter of 2013 with a net profit of USD 674m before tax, say analysts from SCB securities of Thailand.  Profit was up 10 percent quarter on quarter, but down 54 percent year on year. Behind this sad show was a weak gross margin for both tuna and shrimp, together accounting for 71 percent of 2013 sales so far. The tuna margin was slashed to 10 percent in the first quarter of 2013 from 14.83 percent in 2012.
The tuna business, which provides 49 percent of revenues, has been buffeted by fluctuating fish prices coupled with lower sales volume, together with a weakening margin. The sharp rebound in raw tuna price to a record high of USD 2,325 per ton, or an increase of 22 percent from the low point of USD 1,900 per ton at the end of 2012, made a big dent in customer purchasers.
It is believed that TUF’s tuna sales volume improved in the second quarter of 2013 as customers likely ran out of low-priced inventory carried over from the last quarter of 2012 and thus needed to restock. However, it is expected the margin in the second quarter of 2013 to continue poor, with a real turnaround evident in the third quarter of 2013.  The 2013 average gross margin for tuna is expected to inch back up to 13.03 percent, with a rebound to 15 percent in 2014.
The gross margin for the shrimp business, contributing 21 percent of revenues, continues to be hurt by the ongoing Early Mortality Syndrome (EMS) epidemic. This has resulted in a shrimp supply shortage and price surge, pushing costs up. The disease slashed annual Thai shrimp production to 250,000-300,000 tons from 550,000 tons. Shrimp is heading for another barrier next January (2014) when GSP on processed shrimp exported to Europe will be cut and import tax raised to 20 percent from 7 percent for cooked shrimp and to 12 percent from 4.2 percent for frozen.
TUF has not performed well for two quarters in a row in the last quarter of 2012 and the first quarter of 2013, but it is believed that things are looking up and gross margin is expected to improve in the second quarter of 2013 to 12.3 percent from the average of 10.9 percent in the first quarter of 2013, with a core profit of USD 400-500m before tax. It is expected that quarterly core profits will improve to USD 800m-1bn before tax in the second half of 2013 and gross margin to rise to 14-15 percent with the year’s average gross margin of 13.13 percent.
Leading the turnaround will be higher tuna sales volume and gross margin, the high season in the third quarter, improved operations of the U.S. Chicken of the Sea brand, as well as MW Brands in Europe, plus increased shrimp output and shrimp feed sales as shrimp supply begins to return in the third quarter of 2013.