Li & Fung Surges in Hong Kong on Company Outlook

Li & Fung Ltd., the world’s largest supplier of clothes and toys to retailers, surged the most in more than four years after saying its business is recovering and operating earnings are set to pick up later this year.

The outsourcer rose 12 percent to HK$11.76 in Hong Kong, the biggest gain since April 2009. The Hong Kong’s Hang Seng Index was little changed.

Orders for the second half are “solid,” Chief Executive Officer Bruce Rockowitz said at an Aug. 13 press conference. Li & Fung, whose customers include Wal-Mart Stores Inc., and Target Corp., has been pushing to revive its U.S. unit after weaker demand has hurt those operations.

“The worst is behind us and we are on track to recovery in 2013,” the company said in its statement.

Net income fell 16 percent to $96 million for the six months ended June from a year earlier, missing an average estimate of $106.3 million from three analysts compiled by Bloomberg.

Core operating profit rose 1 percent to $223 million in the first half. Second-half core operating profit will be 3 to 4 times that of the first half, Rockowitz said.

Operating earnings are set to pick up in the second half of this year due to back-to-school and holiday season demand, the outsourcer said.

Li & Fung’s order book is 80-85 percent filled, the same as in previous years, according to Eddie Lau, a Citigroup analyst who expects strong cash flow in the second half of the year as the group’s earnings are skewing more to that period. He reiterated his ‘buy’ rating.

Li & Fung gets more than 60 percent of its revenue from the U.S. It has changed management and discontinued some brands to revive its U.S. unit. That restructuring is on track to be completed by the end of 2013, the company said.

LF USA is hitting bottom, Anne Ling, an analyst at Deutsche Bank AG, said yesterday and she expects a strong recovery in 2014 for the group because of an improving U.S. economy. She upgraded the stock to ‘buy’ from ‘hold.’

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