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Li & Fung Ltd. (494), the world’s largest supplier of clothes and toys to retailers, said first-half core operating profit fell 22 percent to $221 million amid pressures in its U.S. business and investments in Asia.
In the U.S. market, where consumers have been curbing spending amid a slower economy, growth has been below the company’s expectations, Chairman William Fung said at a press conference yesterday.
“Normally in an election year you’d expect things to be better, but it hasn’t been the case,” Fung said of the U.S. “The global economic climate has been bad.”
The global outsourcer has relied on acquisitions to boost growth, spending about $3 billion on deals from 2006 to 2011, driving up both sales and profit in the five-year period, according to data compiled by Bloomberg. The company now has the “firepower” to spend as much as $1 billion on acquisitions, Chief Executive Officer Bruce Rockowitz said yesterday.
HSBC Holdings Plc cut its recommendation to underweight, Credit Suisse Group AG downgraded it to underperform, and Citigroup Inc. lowered it to neutral.
Li & Fung shares rose 3.1 percent to close at HK$15.98 in Hong Kong before the results were announced. The stock has advanced 11 percent this year, compared with the 10 percent gain in the benchmark Hang Seng Index.
First-half profit rose 33 percent amid writebacks on acquisition payments and said it can spend as much as $1 billion on more deals. Net income rose to $312 million, from $236 million a year ago, Li & Fung said in a statement to Hong Kong’s stock exchange yesterday. The earnings reflected a writeback of $198 million in the first half on estimated payouts for prior acquisitions.
During the first half of 2012, the group signed four acquisitions to boost its trading business. Revenue and profit before tax from the newly acquired companies were about $110 million and $24 million respectively for 2011, the company said. Li & Fung’s average cost of goods will drop in the second half, Rockowitz said
Li & Fung, whose customers include U.S. retailer Wal-Mart Stores Inc. (WMT), Target Corp. (TGT), and Kohl’s Corp. (KSS), in March raised HK$3.9 billion in its biggest share sale since listing in 1992.
The company, which traces its beginnings to 1906 when parent Li & Fung Group was founded, has supplied U.S., European and Asian retailers with increasing amounts of Asia-made clothes, toys and furniture to boost sales. The 2010 purchase of Integrated Distribution Services Group Ltd., which distributes goods in Asian nations, including China, may help Li & Fung get more sales outside the U.S.
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