Lotte Chilsung Beverage's second-quarter earnings this year are expected to show modest profit declines despite strong product sales. A forecast compiled by Yonhap Infomax on the 22nd attributed the decline to increased cost burdens from the Middle East war and won weakness. Analysts noted that the company's beverage price increase, implemented from May 26, will begin reflecting in third-quarter results and could support profit defense in the second half.
Lotte Chilsung Q2 Forecast Shows Revenue Growth and Profit Decline
Yonhap Infomax compiled earnings forecasts from nine major domestic securities firms published within the past three months. Lotte Chilsung is expected to post consolidated revenue of 1.121 trillion won and operating profit of 61.6 billion won for the second quarter this year. Revenue represents a 3.13% increase compared to the same period last year, while operating profit reflects a 1.19% decrease.
As of the first quarter this year, Lotte Chilsung's standalone business consists of beverage manufacturing and sales (68.1% of revenue) and alcohol manufacturing and sales (31.9% of revenue).
Beverage and Alcohol Sales Drive Revenue Growth
Second-quarter domestic beverage and alcohol sales are analyzed to have increased 3.2% and 1.3% respectively, supporting the company's external growth. Beverage sales growth centered on zero-calorie carbonated drinks and energy drinks. Alcohol sales showed strong performance from new RTD products including 'Soonhari Jin' and soju 'Saero'.
Lee Da-yeon, researcher at Daol Investment & Securities, stated that "in beverages, growth appeared in RTD, energy, and sports categories compared to the same period last year" and "exports also recorded high single-digit growth." She added that "in alcohol, soju 'Saero' growth continues" and "soju 'Cheoeum Cheoreom' showed a more gradual sales decline."
Middle East War and Currency Weakness Increase Costs
Lotte Chilsung's second-quarter operating profit is expected to have decreased due to rising costs. The war between the United States and Iran that broke out in late February led to increases in packaging material prices and international oil prices, resulting in cost burdens.
Second-quarter won weakness also increased cost burdens for raw materials including aluminum. The dollar-won exchange rate reached as high as 1,561.5 won intraday during the second quarter this year.
Lee Da-yeon stated that "can costs are reflected with a time lag linked to market prices" and "Lotte Chilsung is exploring various measures for cost reduction, such as replacing some can products with PET." She diagnosed that "considering the dollar-won exchange rate, the cost burden phase is expected to continue for the time being."
Price Increase Strategy to Support Second-Half Profit Defense
The effect of Lotte Chilsung's beverage price increase is expected to appear starting in the third quarter, potentially preventing profit declines in the second half. From May 26, Lotte Chilsung raised the factory prices of 44 products across 12 brands including Chilsung Cider by an average of 5.3%. This price increase is the first since June 1, 2024, approximately two years ago.
Han Yu-jeong, researcher at Hanwha Investment & Securities, stated that "the beverage price increase at the end of May will be reflected starting in the third quarter" and "if summer peak season weather supports it, second-half profit defense will become possible."
On the 21st, Lotte Chilsung's stock price closed trading at 96,800 won, up 0.21% from the previous session.
FAQ
What were Lotte Chilsung's second-quarter earnings forecasts this year?
Lotte Chilsung is expected to post consolidated revenue of 1.121 trillion won and operating profit of 61.6 billion won for the second quarter this year, according to a Yonhap Infomax compilation of forecasts from nine securities firms. Revenue represents a 3.13% increase compared to the same period last year, while operating profit reflects a 1.19% decrease.
Why did Lotte Chilsung's operating profit decline in the second quarter despite sales growth?
The profit decline is attributed to increased cost burdens from the Middle East war that broke out in late February and won weakness during the second quarter. The war led to increases in packaging material prices and international oil prices, while the dollar-won exchange rate reached as high as 1,561.5 won intraday, increasing costs for raw materials including aluminum.
When did Lotte Chilsung implement its beverage price increase?
From May 26, Lotte Chilsung raised the factory prices of 44 products across 12 brands including Chilsung Cider by an average of 5.3%. This price increase is the first since June 1, 2024, approximately two years ago. The effect is expected to appear starting in the third quarter.
