HKFoods Q4'24 preview: The profitability turnaround could enable a balance sheet restructuring

Translation: Original published in Finnish on 02/11/2025 at 08:46 am EET

HKFoods will publish its Q4 financial statements release on Friday, February 14 at around 8:30 am EET. In mid-January, the company provided preliminary information showing that profitability developed very strongly toward the end of the year. The earnings guidance for 2025 and the outlook for the redemption of the hybrid loan are key themes in the Q4 report. Our current forecasts assume that the earnings level will remain stable at the improved level of 2024, but in our view, the company also has the potential to continue improving profitability in 2025 if risks in the operating environment do not materialize.

We expect growth to have been at a good level

We forecast HKFoods’ Q4 revenue to be 277 MEUR and increase by 11% y-o-y. Half of the forecasted growth relates to the accounting-technical growth of the Polish bacon business' revenue. We estimate organic growth of 5.6%, which would likely imply strong volume growth as food prices were relatively stable year-on-year in Q4. We believe the demand environment has developed cautiously positively as interest rates have declined and that HKFoods has simultaneously gained some market share in retail and foodservice.

Profitability multiplied compared to one year ago

Q4’s EBIT is roughly known after HKFoods reported preliminary data on full-year 2024 EBIT (27-28 MEUR) on January 15, 2025. Q4’s EBIT would thus be approximately 10.1 MEUR, which would mean that the result would more than triple from the comparison period. The company cited production efficiencies, commercial success and, in particular, a strong Christmas season as reasons for raising guidance. We also estimate net profit to turn 5.4 MEUR (reported) positive or be 3.8 MEUR after hybrid interest and minority interest.

Improved profitability opens up options for the balance sheet

We forecast HKFoods' net debt (excluding the hybrid bond) to be 141 MEUR, which is only 2.4 times EBITDA. So, the balance sheet has clearly developed in a better direction, although indebtedness is still high relative to the company's historical earnings level. If the current profitability persists, the company could reduce its debts relatively quickly in the coming years and thus achieve savings on its currently high financing costs. We would see it as positive for the investment case if the company could redeem its expensive hybrid loan (interest rate 16% p.a.) already during 2025. In our forecasts, we have assumed that this will not happen until fall 2026. We do not expect HKFoods to pay a dividend for 2024, but as the amount of debt and interest expenses decrease, possibilities for dividend distribution improve in the coming years.

Will earnings growth continue in 2025?

Our current forecasts assume that HKFoods' revenue will grow by 5% in 2025. About half of the projected growth is organic, mainly volume-driven, and half is accounting-technical growth. We expect adjusted EBIT to remain stable at around 28 MEUR. The company's guidance for 2025 is a significant source of information guiding earnings expectations. Positive earnings drivers include, e.g., a slight improvement in consumer demand, the start of Chinese poultry exports and, in particular, implemented efficiency investments. However, wage inflation is likely to be higher than usual in 2025. Other potential risks include a broader increase in raw material prices and export restrictions to China caused by geopolitics. In our view, HKFoods still has significant earnings improvement potential relative to industry peers, but assessing a sustainable earnings level is challenging in light of the company's long-term historical profitability challenges.