Ito En seen brewing up 25% profit growth

TOKYO — Japanese tea maker Ito En is seen logging an operating profit of around 21.5 billion yen ($194 million) for the fiscal year ended in April, up 25% on strong overseas sales of its mainstay bottled-tea brand.
That would surpass the company’s guidance of a 19% increase to 20.5 billion yen. Sales are likely to rise 3% to 480 billion yen, topping guidance of 475 billion yen. The annual dividend is expected to remain at 40 yen per share.
Sales of a new product, cold-bottled matcha, were brisk. Other bottled teas such as hojicha, or roasted green tea, and barley tea also sold well year-round. Vegetable juice sales of products like aojiru, a drink commonly made from kale, and tomato juice recovered.
Japanese tea is becoming more widely recognized overseas as consumers shop for healthy products and the number of visitors to Japan increases. Ito En’s green tea sales in Asian countries such as Thailand and China are strong. Overseas sales are seen at around 35 billion yen for fiscal 2016, barely beating company guidance but still below the previous year’s figure.
Ito En reduced depreciation expenses on its vending machines by switching to an accounting method that lengthens their useful life. The move likely lifted profit by about 3 billion yen. The company apparently reduced costs by limiting commercials and other advertisements to its mainstay, regular products.
Coffee chain subsidiary Tully’s Coffee Japan is believed to have steadily improved revenue as well. In addition to opening more directly managed locations, spending per customer at existing stores likely rose.
Revenue and profit growth are expected to continue in the current fiscal year. The tea market has been revitalized as competitors freshen their regular green tea brands with new bottlings and more. This will provide a tailwind for Ito En as well. Sales of tea bags and other tea-leaf products are likely to do well as the company targets demand from visitors to Japan. The company’s earning power is improving from increased sales of high-margin green tea products, and its local subsidiaries elsewhere in Asia will start to turn profitable.
Fiscal 2016 earnings results are due out Thursday.

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