Q2 2026 CJ CheilJedang Corp Earnings Call - Q&A
Speaker #1: Let us begin Q&A. For those with a question, please press star and the number 1. If you want to cancel, press star and the number 2.
Speaker #1: The first question comes from 박상진 from KIEM Securities. Please go ahead. Good morning. This is 박상진 from KIEM Securities. I have 3 questions. First, overall for the food business, costs are rising and logistics costs are also rising.
Speaker #1: And the Korean business unit raised the prices recently, and for the global business, have you raised the price in the first half, or do you have any plan to do so in the second half?
Speaker #1: That was my first question, and secondly, it's about SG&A expenses. Accepting CJ Logistics, there was a 50% increase, 13% from food, and 2% from bio.
Speaker #1: So bi-business unit: could you explain what were the main drivers for the expense hikes? And lastly, regarding the business reorganization, if you look at the details, the technical solutions seems like they're getting a lot of support through this reorganization.
Speaker #1: So in the overall sales, how much are they taking up, and regarding the growth potential, what is your forecast for their growth rate? Could you give us some guidance?
Speaker #1: Thank you. For the price hikes, global food business, if you look at the retailers' pricing policies and the U.S. government's focus on price stability, room for price increases remains limited.
Speaker #1: That said, in some regions, there may have been limited price adjustments due to continued cost inflation, but these would have been unavoidable and are not expected to have a material impact on earnings.
Speaker #1: As we remain focused on top-line growth, under the current environment, we plan to place greater emphasis on reducing costs and expenses rather than raising prices.
Speaker #1: We will continue to respond carefully while closely monitoring changes in the internal and external economic and policy environment. Regarding your second question, about the expenses, among the biggest burdens came from logistics due to the rising oil prices, and across our global sites, we saw an increase in A&D spending for promotion of BBGO brand.
Speaker #1: So A&D and logistics were the main drivers. Regarding the bio SG&A expenses, from last year, we have been pursuing optimization of our business, so rather than SG&A, it's mostly due to the rising logistics and oil prices.
Speaker #1: And next, regarding the business reorganization, specifically about technical solutions, we gave a brief overview of the overall direction, and for technical solutions, regarding sales, it takes about 10% of the entire CJ JOJedang sales but, given its growth potential, besides nucleotides, we have taste and nutrition, and industrial ingredients such as PHA, and we also have health and wellness business.
Speaker #1: So each of these portfolios are based on our strong technology and we are trying to provide more tailored specialty products for consumers and customers to make it more high-value business.
Speaker #1: So in the short term, they might not look like that promising, but in the long term, we believe they will be an important growth driver for our business.
Speaker #1: The next question is from 김정욱 from Merit Securities. Please ask your question. Thank you for this opportunity to ask the question. First question is for the U.S., which seems like there has been some growth, quote on growth.
Speaker #1: I'm curious if this is due to market conditions, or how we were able to grow growth in the U.S., and what the outlook is like for the second half.
Speaker #1: Second question is for the regarding the restructuring. It seems there's some focus on profitability, and some will be focused on growth. So although you share the outlook for GSP, I'm curious about the overall growth for food, and if you have any growth targets or global and domestic, I'm very curious, and I'm also curious about the profitability of performance ingredients and what the plan is.
Speaker #1: Lastly, for the third quarter, you mentioned the structural products for bio, so I'm curious about the expected price increases in products such as lysine.
Speaker #1: Let me begin with the first question. In the case of the U.S. market, there was high growth in GSP categories such as Mandu and Hepan, which drove the majority of the growth.
Speaker #1: There were also we saw a lot of growth in channels such as Costco, and we believe that this will continue throughout the second half of the year.
Speaker #1: We also have additional K-food products that are being launched, so we believe this will also contribute to growth in the second half. In case of profitability, for GSP, it is still focused more on growth, but in the short term, there are oil price burdens, so we are raising some prices to respond, and there will still be some profitability burden in the second half of the year.
Speaker #1: From a global and domestic point of view, GSP is growing in double digits overseas, and in single digits, in Korea. So both are growing.
Speaker #1: I will next answer the question regarding bio. For restructuring, in the case of performance ingredients, the feed amino acid is run globally, and we are focusing on optimization for fixed costs as well as structural optimization.
Speaker #1: And especially in the European region or the U.S., there are anti-dumping duties that have been implemented for a long time, and we're seeing more impact now, and this is now also expanding to North America as well as South America.
Speaker #1: So through various strategies such as structural optimization and anti-dumping, we are working on our organization. We are for technical solutions, we are still focused more on growth rather than profitability for now, and we are working to scale the business.
Speaker #1: To share the outlook for the third quarter as well as the second half of the year, there has been a lot of intensifying competition centered around China since last year, and due to that, we are seeing delayed costs normalization and recovery.
Speaker #1: But due to the tariffs, recently announced by the U.S. on Chinese lysine, we are going to be seeing some recovery as well as arginine, and other specialty amino acids.
Speaker #1: We are going to be focused in these areas during the second half of the year. So overall, we are expecting recovery but there will still be cost burden due to issues such as the oil price burden.
Speaker #1: So we are focusing on more efficiency based on this. And now to speak on our major products, lysine, for example, there is anti-dumping in the EU, and the final tariffs were announced in the U.S.
Speaker #1: in July, and they will now be implemented in September, so I believe that the market conditions will improve more in the fourth quarter compared to the third quarter.
Speaker #1: There are same duties will be applied in South America as well, so overall, lysine will be seeing some structural improvements, but in the case of tryptophan, there has also been some falling prices since the second half of last year.
Speaker #1: But it has hit bottom in the first half and is now recovering. Although there is some high recovery in because of the delay in price recovery in China, there are some business burden in China as well due to tryptophan.
Speaker #1: So we believe that production may fall or completely stop in the second half of the year, so we are looking forward to incremental recoveries.
Speaker #1: We'll next question comes from Kim Hyun at Morgan Stanley. Please go ahead. Hello, thank you for the opportunity. I have three questions. First, in Korea, price normalization took place, so regarding that, as we go into Q3 and Q4, how much of the cost burden could be offset by that?
Speaker #1: And secondly, you just mentioned bio business, and I have more questions regarding that. For prices impacted the price to raise so for the second half, is there any forecast for price?
Speaker #1: Because the price is almost double compared to the first half, so please let us know how do you expect it to impact the profitability.
Speaker #1: And for non-operating cost, could you please break down the detailed numbers? I'm Yoon Dong-jung, head of Korea Food Business Planning. Regarding price normalization, it is difficult for us to forecast how much volume cut would take place, so we are staying cautious.
Speaker #1: And even in the best case, it will only offset the cost from the major ingredients such as rice, pork, and chicken. And due to the rise in raw ingredient cost and packaging materials, cost burdens continue, so we raised 27 items prices at an average of 8%.
Speaker #1: Next is bio. As you mentioned in Q2, methionine contributed to improved earnings, and as you know, since Iran were broke skyrocketed, and there has been disruptions in supply, especially spot prices rose a lot, and there was even some panic buying.
Speaker #1: So volumes increased, and sales and profit both improved, why oh why. But due to the protracted war and the consistent move between ceasefire and resumed conflict, the price has now reversed and fallen more than 10% from the peak earlier this year.
Speaker #1: We are not a main player in the methionine business. We only take up 3% to 4% of the global capacity, so as our competitors resume their production and as our Chinese competitors continue to add more facilities, we believe there is enough inventory on the demand side, so we expect the spot price to fall in the second half.
Speaker #1: So we believe continued earnings improvement would be limited, but we will do our best under the current conditions by improving our operations for better profitability in the second half.
Speaker #1: Regarding non-operating costs, financing costs is about 70 billion by quarter, which is huge business as usual, and in this Q2, there was a rising effects rate and rising raw ingredient costs, so there was losses from FX and rate prices.
Speaker #1: And on top of that, we are pursuing financial structure improvement, so there were some well. Besides that, we do not have major items. Thank you.
Speaker #2: Next question, please. Currently, there is no question on standby. If you have a question, please press star and the number 1. Next question is from Park Seong-jun from Kim Securities.
Speaker #2: Please ask your question. Hello, I want to ask three more questions. The first question is simple. So for technical solutions, you mentioned that the sales takes up around 10% of total sales.
Speaker #2: So could you check the numbers again with excluding logistics? And based on the past IR data, you gave us updates on pizza, whether it's the market conditions or competitors, so I'm curious to the overall pizza market.
Speaker #2: Are there any changes? Because I remember if correctly, if there were some price competitive-ness in pizza and competition, so please give us an update on the pizza market.
Speaker #2: And third, for performance ingredients, do you after restructuring? There's a lot of products that have comparably lower profitability. So when you say there are structural efforts, there could be sales of factories, or M&A, and I'm sure these are some areas you have considered.
Speaker #2: So I am curious about your structural approach to performance ingredients. Thank you. Let me begin with the second question. For the US pizza market outlook, for Red Baron, we are higher compared to the competitor DiGiorno, and we are continuing to, and this gap is still continuing to decrease.
Speaker #2: However, the overall pizza market is stagnant in the US due to continued inflation, there is less consumption, and the SNAP program that was a program ran for low-income consumers due to cuts in the program, we are seeing less purchasing power, among low-income consumers.
Speaker #2: In the second half of the year, we plan to expand sales beyond grocery and club channels into convenience stores and food service, while also launching new products.
Speaker #2: And by doing so, we'll be able to maintain market share and drive recovery in sales. For the technical solutions, sales ratio, it is the ratio excluding logistics.
Speaker #2: And for the profitability of performance ingredients, following the objective of the restructuring, because we are focusing on customized solutions, there are additional costs such as R&D, and performance ingredients is focused on more commodities.
Speaker #2: So we are working to optimize fixed costs such as sales and production. And we are more aware and we are more impacted by grain prices and effects and oil prices and other market conditions.
Speaker #2: So when profitability is high, it's higher than other reuse, but when the profitability falls, it can fall more compared to the other reuse. So for profitability and performance ingredients with this background, we have the specialty feed amino acid and other products.
Speaker #2: For the lower profitability, products we are also doing portfolio optimization. But as of now, we are not reviewing any major changes such as M&As but we are looking into liquidization of smaller business areas and we will be able to provide updates when they are ready.
Speaker #2: Please ask the next question. From Carol at Marriott Securities, please go ahead. Thanks for the additional opportunity. For global food, you are driving growth through GSP and targeting double-digit growth in the long term in the US and in regions other than the US.
Speaker #2: What are your growth targets? And do you have specifically like the sales ratio targets for different regions regarding the financial structure net debt growth QOQ and YOY?
Speaker #2: So what's your plan for managing the net debt in the second half? And lastly, regarding the business reorganization, for lifestyle foods, technical solutions, and performance ingredients, what's your KPAX plan for each division, and is there any changes to your KPAX plan?
Speaker #2: Thank you. Regarding GSP, in the US, they take up 70% of the entire GSP sales and for the non-US region, they take up the remaining 30%.
Speaker #2: And in the US, they have large volumes and already market is established for Mandu. So in the US, growth rates would be lower compared to other regions.
Speaker #2: In EU, APAC, and Japan, they will, they're expected to show higher growth rates. In the long term, sales from other regions will take up more portion and we are expected to open hungry plant around the end of this year and we will stabilize our Chiba plant in Japan.
Speaker #2: And we believe they will drive sales in regions other than the US. Regarding the rise in net debt, compared to the end of last year, we saw an increase of 800 billion won and the biggest driver is the FX rate hike in the first half.
Speaker #2: There was more than 101 hike and seasonally our rise in working capital including raw ingredient costs and inventory asset were the drivers, but we expect them to go down.
Speaker #2: And regarding KPAX, there's investment for the hungry plant and investments in the US, so they affected the rise in our net debt. Going forward, FX currency fell by 101 in July and seasonally we expect our working capital to reduce as well.
Speaker #2: So towards the end of the year, we expect our net debt to be around the business as usual level. And in the long term, we are planning to control it tightly.
Speaker #2: So in the long term, we will drive down our net debt that was my answer. Regarding the last question about KPAX, in 2026, we expect it to be 1.1 trillion and we think there will be no change to our forecast.
Speaker #2: And the new KPAX will take up 60 to 70 percent and under the existing food business or the new lifestyle foods, they will take up most of the new KPAX.
Speaker #2: And regarding the maintenance KPAX, lifestyle, other than lifestyle foods, technical solutions and performance ingredients will the KPAX. We'll take the next question.
Speaker #1: Next question is from Han Yujang from Hanna Investment Securities. Please ask your question. Hello everyone. I have two questions. Until last year, you shared that GNA excluding logistics, so could you share the detail and breakdown of SGNA and second, it seems that food margin was lower than expected.
Speaker #1: So could you share the overall profitability of food by BA? We'll first answer the question regarding the SGNA. Currently, due to geopolitical risk, there is some increase in oil prices, which has led to logistic burden.
Speaker #1: There has also been increase of promotional costs and advertisement costs due to marketing expenses, we are currently holding BBGO campaigns in different countries, which has led to additional costs.
Speaker #1: We believe that oil prices will be stabilized soon and by expanding into new markets, we will be able to be stabilization. In the case of BA, let me begin with the global regions.
Speaker #1: In the case of Europe, where we are focusing on high growth, there was some OP burden. Also, in Japan, there was also the impact of Michio as well as the Chiba factory.
Speaker #1: So we saw lower margin in Japan and Europe. And along with that, there were some marketing expenses, which I mentioned previously. Let me answer the question regarding the margin of Korea.
Speaker #1: We were able to see margin growth due to volume growth. And also for SI, because prices fell, we also saw fall of margin. We will take one more question due to time constraints.
Speaker #1: There are currently no questions on standby. If you would like to ask a question, please press star and the number one. With this, we will conclude CJ Chair Jajang's Q2 2026 earnings call.
