By Arra B. Francia
Reporter
ACCELERATING PRICES of goods crimped the growth of some of the country’s top conglomerates in the third quarter, as margins contracted due to higher input costs.
Regina Capital Development Corp. Investment Analyst Rens V. Cruz II said macroeconomic headwinds such as faster inflation and the weaker peso affected the growth of big companies.
“The more obvious effect is through the increasing cost of production, including raw materials, imported ingredients, higher transportation & overhead costs,” Mr. Cruz said in a mobile message.
“The other less discernible impact — but with greater implication — revolves around a softer domestic demand. With purchasing power of consumers reduced significantly by high inflation, volume sales for local firms — especially for consumer companies — are impaired.”
For Unicapital Securities, Inc. Certified Securities Representative Cristopher Adrian T. San Pedro, conglomerates with food segments were the most affected by inflation.
Mr. San Pedro noted that San Miguel Corp. (SMC), for example, saw its net income drop by seven percent last quarter following elevated costs of goods sold (COGS) in addition to higher interest expense. San Miguel’s net income stood at P14.32 billion in the three-month period, lower than the P15.35 billion it posted a year ago, according to a regulatory filing.
“COGS increased by 31% to P603.66 billion due to increase in crude prices, effect of excise tax of Petron, and increase in cost of major raw materials of the food group. SMC’s gross profit margin declined from 8.4% in 3Q17 to 7.8% 3Q18 because of inflation,” Mr. San Pedro said in an e-mailed reply to questions.
Regina Capital’s Mr. Cruz shared this observation, saying that San Miguel’s food and beverage unit saw profit slide due to higher prices of raw materials. “Basically, lower year-on-year earnings coupled by higher cost leaves these companies with contracting margins, and ultimately, smaller share in profit,” Mr. Cruz said.
Unicapital’s Mr. San Pedro said higher prices also eroded margins of DMCI Holdings, Inc.’s construction unit, DM Consunji, Inc., to 12.2% last quarter, versus 17.7% in 2017’s comparable three months. In addition to higher prices, DMCI Holdings’ coal miner, Semirara Mining and Power Corp., was the bigger snag to third-quarter performance. Semirara sales dropped 24% to P16.14 billion following plant shutdowns due to maintenance and repair as well as bad weather. Consequently, DMCI Holdings’ net income fell 54% to P2.61 billion.
Mr. San Pedro said Ayala Corp. felt the pinch of inflation through its water unit, Manila Water Company, Inc., which booked a 13.2% fall in gross profit to P2.5 billion in the third quarter. Gross profit margin slipped to 52% from 63.2% in the same quarter last year. “Inflation was felt on Manila Water… This is due to the higher direct costs resulting from higher repairs and maintenance costs, and lower average consumption and especially in… Boracay Island Water Co.…” he explained.
Ayala’s third-quarter earnings dipped five percent to P7.8 billion, weighed down as well by its banking and industrial units.
SM Investments Corp. continued to be buoyed by its property unit, even as retail operations saw net income margin trimmed to 4.1% in the nine months to September from 4.3% a year ago. In the third quarter alone, SM Retail’s net income slumped by 12%.
“Despite the growth slowdown in retail, there might be a boost in 4Q, especially with strong SSSG (same-store sales growth) seen for department and specialty stores. SMPH should also unfold upside potentials with the expansion of its leasing operations,” F. Yap Securities, Inc. said in a report, referring to SM Prime Holdings, Inc.
For GT Capital Holdings, Inc., increased prices of auto units due to higher excise tax rates that kicked in last January continued to erode car sales. “Decline in car sales for GTCAP is, again, due to the higher selling prices, causing a decline in demand… The automotive business segment’s rough performance was offset by the strong results from the banking sector,” Unicapital Securities Junior Analyst King de Mesa said in an e-mail.
Despite the slower auto sales, the company managed to increase its net income by six percent to P3.8 billion last quarter due to strong sales from its property unit, Federal Land, Inc.
“On the whole, all were affected but in varying degrees. How much they import will have a direct bearing on their bottom lines, given the weaker peso,” PNB Securities, Inc. President Manuel Antonio G. Lisbona said via text.
“Higher inflation rates will also prompt our monetary authorities to raise rates, which in turn raise interest costs and reduce profits.”

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