LG Household & Health Care’s beverage business loses profitability Effect of price hike offset by surging raw material prices
Translated by Kim So-in 공개 2021-07-30 08:09:54
이 기사는 2021년 07월 30일 08:07 thebell 에 표출된 기사입니다.
South Korea’s top beauty and personal care brand LG Household & Health Care’s beverage business is losing profitability this year due mainly to an increase in raw material prices.LG Household & Health Care’s beverage business said Tuesday that it recorded revenue of 409.4 billion won ($3.57 million) in the second quarter, up 2.9% compared to a year ago. Its operating profit decreased by 6.7% to 57.9 billion won.
The beverage division continued its growth trend in 2020 while its competitors, including Lotte Chilsung Beverage and Donga-Otsuka, were hit hard by the Covid-19 pandemic as consumers' outdoor activities contracted. The division has maintained the momentum this year, with its revenue increasing by nearly 3% in the second quarter year-on-year.
The division’s revenue grew thanks to a rise in the product price. Beverage sales decreased compared to the previous year, but the price hike at the beginning of this year has offset the effect. As of January 1, LG Household & Health Care hiked prices of its main products, including Coca-Cola and bottled water, by 5-10%. The beverage business’s price hike made in the first quarter normally starts to be reflected in earnings from the second quarter.
Despite the positive performance, concerns are rising as it started to lose profitability due to the aftermath of a rise in prices of raw materials. Since the beginning of this year, prices of raw materials, including aluminum, resins, and raw sugar, have risen sharply, leading to a drop in the beverage division's operating profit.
The global aluminum price, which was $2,000 per ton until January, has jumped to a $2,500 level this month. This means the cost increased by 25% in just six months. The global raw sugar price also soared by 30% from 14 cents per pound to 18 cents during the same period.
The increase in raw material prices was more than enough to offset the positive effect of the price hikes.
The rise in prices of raw materials is likely to keep pressuring the division’s business into the second half of this year.
LG Household & Health Care is expected to choose whether to make another price hike despite market resistance, or offset a rise in raw material prices through cost-cutting strategies in other divisions. It won’t be easy to protect the profitability by increasing sales amid weak demands for beverages after the pandemic.
The rise in raw material prices can also have an impact on the company’s other businesses, including household goods and cosmetics. (Reporting by Hyo-jeom Jun)
< 저작권자 ⓒ 자본시장 미디어 'thebell', 무단 전재, 재배포 및 AI학습 이용 금지 >
best clicks
최신뉴스 in 전체기사
-
- [돌아온 임종윤 넥스트 한미약품]임종윤 사장, 주담대 돌려막기 '82만주' 담보 추가대출
- [현장 인 스토리]뉴로메카, 출하 전 96시간 몸푸는 협동로봇 본진 가보니
- [바이오 스톡 오해와 진실]브릿지바이오, 창업주 엑시트설에 흔들 "사실 아니다"
- [기업집단 톺아보기]해외진출 타진 삼성화재, 영국 투자서 빛 봤다
- [2024 캐피탈마켓 포럼]"한국물 신규발행 랠리 이어진다"
- [2024 캐피탈마켓 포럼]"유상증자 통한 자금 조달 본격화된다"
- [2024 캐피탈마켓 포럼]팬데믹으로 중립금리 상승…성장률 '상고하저'
- [2024 캐피탈마켓 포럼]'방향성 잃은' 금리, 기업들의 자금조달 전략은
- [thebell interview]"일본 부동산·퇴직연금 경쟁력 강화, 수익성 제고 목표"
- 황성환의 '타임폴리오 유토피아'