Tingyi Profit Falls 35% on Higher Costs, Colder Weather

Tingyi (Cayman Islands) Holding Corp., the company that agreed to be PepsiCo Inc.’s bottler in China, said third-quarter profit fell 35 percent as prices for raw materials rose and colder weather hurt beverage sales.

Net income fell to $131 million, or $2.33 a share, in the three months through September, from $200.49 million, or $3.57, a year earlier, Tingyi said in a filing today. Colder weather in southern China hurt demand for its drinks, China’s largest maker of packaged food said.

“Due to the rising labor costs and ongoing high raw material prices, coupled with the low season for beverage in winter, we expect the operating environment remains difficult in the fourth quarter,” the maker of Master Kong noodles and ready-to-drink tea said in its statement.

Tingyi gained 4.3 percent, the most in a week, to HK$21.80 at the close in Hong Kong trading. The stock earlier jumped as much as 8.1 percent after Hang Seng Indexes Co. said Tingyi will be added to the city’s benchmark.

Sales for the Tianjin, northern China-based company rose 6.7 percent to $2.2 billion. Gross margin narrowed 3.5 percentage points to 27.14 percent.

Beverage Margin Narrows

Tingyi will swap a stake in its beverage business for PepsiCo’s bottling operations in China, the companies said Nov. 4. The noodle maker said it plans to “expand into new markets, strengthen cost controls, optimize product mix, enhance product research and development” to increase its market share.

Third-quarter profit from the beverage business fell 57 percent to $25.3 million, Tingyi said. “The lower-temperature weather in the southern regions in the summer time due to heavy rainfall” hurt sales of its beverages, which include bottled teas and fruit juices, it said.

Gross margin at the beverage business narrowed by 5.24 percentage points to 25.9 percent.

Tingyi said on Aug. 23 that prices for raw materials were rising and that it expected the trend to continue. Want Want China Holdings Ltd. (151), the nation’s biggest maker of rice cakes and flavored milk, said the same day that it faced “tremendous pressure” from rising raw-material costs.

Want Want, which will join the Hang Seng Index together with Tingyi on Dec. 5, rose 6.1 percent to HK$7.44.

Under the agreement with PepsiCo, the Purchase, New York- based company will transfer equity interests in its bottling operations in China to Tingyi-Asahi Beverages Holding Co. In exchange, PepsiCo will receive 5 percent of Tingyi-Asahi, with an option to increase the stake to 20 percent by October 2015.

Tingyi will also make, sell and distribute PepsiCo’s carbonated soft-drink and Gatorade brands, and co-brand its juice products under the Tropicana label.

To contact the reporters on this story: Vinicy Chan in Hong Kong at vchan91@bloomberg.net; Anjali Cordeiro in Hong Kong at acordeiro2@bloomberg.net

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.