CJ CheilJedang's Q2 Profit Slides 18.4% Despite Strong Overseas Food Sales

CJ CheilJedang posted second-quarter revenue of 4.195 trillion won ($3.03 billion), up 10.2% from a year earlier, the food and bio group said in a regulatory filing. Despite the top-line gain, operating profit dropped 18.4% to 161.9 billion won, and the company slipped into a net loss of 23.9 billion won, dragged down by foreign-exchange trading losses and derivatives valuation losses linked to a stronger won and rising grain prices.

The revenue growth was driven largely by overseas expansion. Food division sales rose 5.8% to 2.8441 trillion won, with overseas food revenue jumping 10.1% to 1.5072 trillion won — now accounting for more than half of all food sales. The company credited its lineup of global strategic products, chiefly frozen dumplings, Hetbahn instant rice and seaweed snacks, for the gains, reporting growth of roughly 10% in the Americas, 19% in Europe, 21% across Asia-Pacific and 5% in China.

Profitability told a different story. Operating profit at the food division sank 21.3% to 70.9 billion won as packaging costs, pushed higher by elevated oil prices, combined with rising raw material expenses to squeeze margins. Domestic food sales grew just 1.4%, weighed down by soft consumer demand and cost pressures tied to a weaker won, though the company said stronger sales of new health-and-wellness products partly cushioned the decline.

The bio business posted even faster revenue growth, up 20.8% to 1.3509 trillion won on strong demand for specialty amino acids such as arginine and isoleucine along with staple lysine. Yet operating profit in the division fell 15.9% to 91 billion won, as intensifying competition in tryptophan — typically a high-margin product — and a tough comparison with an unusually strong year-earlier quarter weighed on results.

To address the profitability slide, CJ CheilJedang overhauled its organizational structure on July 1, splitting its former food-and-bio setup into three units: lifestyle food, technology materials and core materials. The lifestyle food unit will keep pushing global strategic products like dumplings and Hetbahn abroad while sharpening its higher-margin product mix at home; the technology materials unit will chase new growth areas; and the core materials unit aims to speed up an earnings recovery by capitalizing on favorable market conditions.

"We will accelerate the expansion of K-food into new markets by leading with global strategic products such as dumplings and Hetbahn," a company official said, adding that the firm would also work to lift profitability by growing bio sales and trimming manufacturing and fixed costs in the second half.