Durrant Pate/Contributor

Increased demand for consumer staples and household items as well as higher prices drove revenue growth for most manufacturing companies listed on the Junior Market of the Jamaica Stock Exchange (JSE) in their most recently concluded financial quarter.

However, some saw net profit growth being tempered or adversely impacted by higher shipping and utility costs and raw material prices. Of the ten companies listed in the sector, seven saw an improvement in earnings owing to strong revenue growth, which surpassed increases in costs.

JFP Limited led the way, improving by 103.4 per cent followed by Spur Tree Spices, up 35.6 per cent; AMG Packaging improving by 29.3 per cent; Lasco Manufacturing, inching up 3.1 per cent and Caribbean Flavours & Fragrance barely climbing by 0.26 per cent. They were among the companies to have reported an expansion in earnings for their respective quarters.

Renewed business activity, the reduction in unemployment and higher sales prices with producers passing on increased costs were the main revenue drivers. However, in some stances, the costs outstripped the growth in revenues.

Among the declining manufacturing companies on the junior market were Honey Bun, down 24.4 per cent, KREMI down ever further at 98 per cent and Jamaica Teas leading the decline at minus 145.01 per cent as they experienced a falloff in gross profit margins.

Cost containment impact

While some companies fared better than others in containing costs, the cost impact on companies within the sector was widespread, as commodity price shocks and high shipping costs contributed to a 23.8 per cent point-to-point increase in the manufacturing industry producer price index for June 2022. The main drivers of the elevated input costs have begun to ease on account of recession fears and increased grain supply following a deal between Russia and Ukraine.

It has been assessed by market experts that if this trend is sustained along with the benefits that continue to accrue from the economic rebound, there could be a tempering of the negative effects of cost on the sector’s profit margins. However, the biggest downside risks that remain are the still-evolving COVID-19 pandemic, monkeypox, a possible recession in key markets and another spike in commodity and shipping prices stemming.

NCB Capital Markets report that “sustained demand for consumer staples, office and household items, continued to drive revenue growth for most companies within the manufacturing sector.”

For examination, AMG recorded a 29 per cent year-over-year increase in net profit despite the increase in expenses which came on the back of a shortage of paper rolls and shipping delays and a rise in shipping costs, which did not outweigh the increase in revenues (48 per cent).

This sales performance was supported by AMG’s addition of a second factory, which supported inventory management and its ability to meet the demand arising from the reopening of the economy. Similarly, Lasco Manufacturing’s net profit jumped 31 per cent primarily due to an unrealised gain on financial instruments of $111.21 million.