A stock’s value is largely driven by the company’s earnings and the amount it allocates to its shareholders. As company performance plays such a key factor in stock demand and price, it is imperative that investors stay abreast of results when it comes around to earnings season.

Over the past two months, a slew of companies listed on the Jamaica Stock Exchange (JSE) submitted their results for the period ended December 31, 2010. Though it is evident that some businesses are still being pressured by the effects of the global economic crisis, others are weathering the recession and posting improved performance.

Conglomerate, Jamaica Producers Group Ltd (JP), which returned to profitability in the beginning of 2009, continued to perform well throughout 2010. For YE 2010, JP posted a 48.92 per cent surge in Net Profit Attributable to Shareholders to $312.21 million as all business segments reported improved earnings. Revenue declined 5.64 per cent, but was offset by a 7.71 per cent decrease in Cost of Operating Revenue. JP’s strategic decision to redirect its attention to core business and liquidate and divest unprofitable business lines continues to prove beneficial. In 2011, JP plans to target new markets and activities such as mining and will also seek to widen its product ranges to include bammies and peeled green bananas. Increasing competition, raw material prices and a restricted market continue to pose a challenge to JP’s growth. Furthermore, the stock has advanced marginally since the start of the year, climbing 1.24 per cent to $20.50 (close price on March 21, 2011).

Looking at another conglomerate, GraceKennedy Ltd’s (GK) YE 2010 Net Profit declined 13 per cent to $2.25 billion, and Revenue fell by 3.64 per cent to $55.32 billion. The Insurance segment grew its results by 18.97 per cent to $5.11 billion, but the biggest segment, Food Trading reported flat earnings of $34.64 billion and all other segments posted declines. The overall reduction was mainly attributable to a fall-off in Net Interest Income as GK’s Profit from Operations grew over the period. Despite being a fundamentally sound Company, since the start of the year, the stock has only gained 1.96 per cent to $54.00 (close price on March 28, 2011), as weak consumer demand continues to impact the Groups’ bottom line.

Carreras Ltd (CAR), which operates within the Retail Industry, said Net Profit for 9m 2010/2011 increased 10 per cent to $2.13 billion on a 17 per cent surge in Revenue. For the first two quarters of its fiscal year, CAR posted strong Revenue growth. In its third quarter, however, this tapered off, largely due to higher prices as a result of the increased Special Consumption Tax (SCT). Net Profit in the quarter declined 16 per cent to $713.69 million, attributable to a fall-off in sales volumes from dampened consumer demand. Nonetheless, the stock has climbed 14.02 per cent year-to-date (YTD) to $60.51 (close price on March 28, 2011), as it continues to be an attractive investment, consistently having one of the highest dividend yields on the JSE.

Taking a look at the manufactuiring industry, Seprod Ltd’s (SEP) YE 2010 Net Profit fell 44 per cent to $830.26 million, as heightened Expenses across the board overshadowed a three per cent rise in Revenue for the period to $9.78 billion. In particular, increased Direct Expenses associated with the company’s sugar acquisition in 2009, also had a negative impact on earnings. Salada Foods Jamaica Ltd (SALF) was also in a similar boat, reporting a 25 per cent reduction in Q01 2010/2011 Net Profit to $16.06 million. Despite a seven per cent increase in Sales on higher volumes of total coffee produced for the domestic market, the low interest rate environment led to a 43 per cent drop in Interest Income. YTD, SALF’s stock price has been flat at $9.50 (close price on March 25, 2011) as it continues to be one of the least liquid on the local market. SEP, on the other hand, has declined by 26.92 per cent to 21.02 (close price on March 28, 2011).

Not surprisingly, the Financial Industry continues to be the most heavily impacted by the Jamaica Debt Exchange (JDX), as is evident in the results of the industry giant Scotia Group Jamaica Ltd (SGJ). SGJ reported a four per cent decline in Net Profit to $2.69 billion for its first quarter ended January 31, 2011 (Q1 2010/2011). The reduction in market rates resulted in significantly lower yields on securities and loan portfolios, contributing to a 12 per cent decline in Net Interest Income. On the other hand, Non-Interest Revenue increased 40 per cent as Net Fee and Commission, Insurance Revenue and Net Foreign Exchange Trading Income surged. Though Net Earnings declined, SGJ’s results illustrate its ability to consistently report positive results in spite of challenging economic times. The group noted in its Management, Discussion and Analysis that it will “continue to shift (its) business model to one that is less reliant on Net Interest Revenue”. It remains focused on product development and the implementation of cost management and efficiency initiatives. Looking at the stock performance, SGJ has declined by 0.28 per cent YTD to $21.07 (close price on March 28, 2011).

At its Investor Briefing held on January 28, 2011, The National Commercial Bank of Jamaica Ltd (NCBJ) stated that the 16.47 per cent reduction in its Interest Income to $7.82 billion for Q1 2010/2011 was reflective of market conditions. Nonetheless, NCBJ produced robust results for the quarter, with Net Profit climbing 8.5 per cent to a record $3.01 billion. According to the group, the rise in Operating Revenue was primarily driven by increased Insurance Premium Income, as well as Net Fee and Commission Income in the areas of pension management, credit-related and card-related services. NCBJ is a fundamentally sound Firm with a strong capital base which has displayed the ability to grow its earnings in spite of the economic climate. The stock, which is has one of the highest dividend yields on the JSE, is up 3.52 per cent YTD to $20.00 (close price on March 28, 2011).

Over on the JSE Junior Market, a few closely watched companies also released earnings. For Q3 2010/2011, Lasco Distributors Ltd (LASD) posted Net Profit of $60.24 million, rebounding from a Loss of $750,000 a year earlier. Revenue climbed during both periods as the company maintained its vibrancy in the marketplace, even in the face of increased competition. Lasco Financial Services Ltd (LASF) also managed to post considerably improved results for the quarter. Despite an absence from Rental and Interest Income from the Properties Division, the company’s Net Profit climbed 41 per cent to $17.49 million on an 11 per cent growth in Revenue. However, the nine-month period showed a decline of 28 per cent as Operating Expenses overshadowed Revenue growth. Regardless of the improved quarterly results, LASD has fallen 8.86 per cent YTD to $3.19 and LASF has dipped one cent below its Initial Public Offering (IPO) price to $2.49 (close price on March 28, 2011).

Lasco Manufacturing Ltd (LASM) has also declined 4.35 per cent to $5.50 since December 31, 2010. However, the stock has more than doubled since its October 2010 listing and this pullback creates a great buying opportunity for investors as LASM leads the pack among its Junior Market peers. For Q03 2010/2011 and 9M 2010/2011, the company reported that net profit climbed 35.72 per cent and 83.82 per cent to $90.51 million and $291.3 million respectively. Revenue climbed during both periods, as LASM positioned itself to capitalise on strong market demand. Finance cost more than halved as the company repaid its entire loan portfolio in October 2010 and interest rates declined. According to LASM, its performance is a measure of the skill with which it has managed production volumes, product mix, pricing, and unit costs.

As global economies rebound, boosting consumer confidence and spending, the demand for the products and services offered by local companies should slowly recover. Furthermore, as the Jamaican economy signals a path towards sustained growth, and fundamentally sound companies on the JSE seek to capitalise on the opportunities that arise, increasing shareholder value should continue to be the order of the day. There’s no time like the present for investors to get into the local equities market. As many continue to sit on the sidelines prior budget presentations, stock prices have retreated, presenting good opportunities for investors.

Deirdre Witter is an Investment Analyst at Stocks & Securities Ltd. You can contact her at dwitter@sslinvest.com.