Meiji's Profit Guidance Cut Is No Surprise; Narrower Decline in Sales of Probiotics a Positive

It is no surprise that narrow-moat Meiji revised down its full-year profit guidance although the nearly 10% cut in operating profit is greater than our expectation of 6%. Cost inflation coupled with persistent weakness in probiotic yogurt and the negative impact of price hikes on sales volumes are attributable to a more than 20% decline in second-quarter operating profits. Management seems to have taken a more cautious stance, anticipating limited price hike benefits during the second half although the sales decline of the once lucrative R1 probiotic yogurt, a key drag on recent profits, has narrowed, turning positive from October after the high-single-digit decline recorded in the second quarter.