Excessively high raw materials prices significantly hurt revenue and profitability

Durrant Pate/Contributor

Faced with rising input costs, Spur Tree Spices is now pursuing a group-wide diversification strategy to improve long-term sustainable results through investment in infrastructure and equipment.

This is being done to facilitate greater efficiency and the introduction of more innovative and profitable items. Company Charman Metry Seaga and CEO Albert Bailey say this process is well advanced — the first phase of which saw the roll-out to market of 37 new stock-keeping units (SKU) in its product portfolio.

They advised shareholders in the company’s just-released June second-quarter report that more items will be introduced across the agricultural manufacturing group in the coming months while admitting that the net profit for the quarter of $7.6 million was not at the expected level but was still higher than the losses of $7.7 million for the same quarter in 2023.

Improved and positive trajectory 

According to Seaga and Bailey, “the key financial indicators are pointing to an improved and positive trajectory for better performance in the upcoming quarters. Revenue is increasing quickly, backed by an expanded and more diverse portfolio of products and improved market penetration. The cost of sales is lower, and gross margins are higher through efficiencies gained from lower input costs, the addition of more profitable items and the benefits from investments in Spur Tree Farm.“

This better performance is based, among other things, on the anticipated buoyancy in the upcoming ackee crop, which will significantly improve profitability in the subsidiaries and contribute to even better results in the parent company and the overall consolidated position.

Adverse impact of Hurricane Beryl

While the passage of Hurricane Beryl on July 3 negatively impacted Spur Tree Farms, the management praised the team for doing a tremendous job in managing the recovery process, noting that based on the latest assessment, the expected yields from the pepper under cultivation is 600,000 lbs. slightly down from the original 650,000 lbs. projected. 

Seaga and Bailey say the investment being made in this area “will prove very timely as raw materials inputs are becoming scarce and more costly given the damage and disruption by the hurricane in the main cultivation areas. Over the past year and a half, the company has faced significant challenges from harsh environmental conditions, including a prolonged drought followed by excessive flooding, which devastated the local agricultural sector on which the company relies for critical raw material inputs.“

The company acknowledges that the price of inputs became excessively high during this period, which had a significantly negative impact on revenue, margins and profit. The managers say the team has worked very hard and strategically to change this position not only for the short term but also for the medium to long term in ensuring the vulnerability and risk exposed during this period are significantly reduced and mitigated moving forward. 

To this end, Spur Tree Spices will continue to hold higher levels of raw materials, supported by expected outputs from our farming initiative, which will ensure raw material availability and price stability and, therefore, no immediate negative impact on sales and margins, even after the passage of Hurricane Beryl.

In addition, Seaga and Bailey said that “revenue streams are more diverse with less reliance on one category of raw material input. All the above factors contribute to the confidence remaining high among the team about the outlook for improved performance and profitability”.