2 months ago
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The leadership of Paramount Trading Jamaica Limited spent most of Monday in a huddle trying to chart the way forward, after the company posted a loss in its first quarter ending August.
It came on the heels of the full-year loss posted by Paramount for the first time in 33 years.
The company, which produces chemicals and lubricants, spun from a profit of $39.7 million to a loss of $37.95 million for the June-August period.
CEO Hugh Graham, however, is putting an optimistic spin on the future.
“We hit a spot. It’s a spot of bother. We have some expenses carrying and that’s affecting us,” Graham told the Financial Gleaner. “Once we shed that, we should be better. The company, from a revenue perspective, is not doing that badly; it’s just the expense that’s pulling us down,” he said.
First-quarter revenue also fell by nine per cent to $389.1 million.
The rising costs and falling sales have led to falling profit margins, which, Graham said, was a matter of concern for Paramount. Gross profit, that is, the amount of money left over after deducting the cost of sales from revenue, plunged from $179 million to $133 million, and with it Paramount’s gross margin fell by nearly eight points in August to 34.28 per cent from the 42.15 per cent in the respective period of 2023.
Graham said that coming out of the pandemic, companies like Paramount were left with bulked-up, high-priced inventory, but now, with the replenishment of supplies, the dynamics around the pricing of its products are changing, ultimately affecting margins and revenue.
“It’s a double whammy brought on by competition, because if you have lower margins, you are driven to even lower margins, and then you have lower revenues,” Graham said. In addition, “one of the unfortunate things about the stock exchange”, he said, is that when listed companies publish their margins, prospective clients use those numbers to clamour for a better price, which ends up impacting margins even further.
“It’s not sustainable”, because “your customers won’t allow you to sustain it,” he asserted.
The margin squeeze in the August quarter was accompanied by a $26.7-million increase in operating expenses due to a non-performing product. Graham would not specify the problem, but said that spoilage was a factor.
A $16.6-million increase in food-grade chemicals, $8.3 million in bleach sales, and $7 million for SIKA construction adhesives could not compensate for declines in other areas.
Revenue from technical-grade chemicals decreased by $34.2 million and lubricants by $6 million, while there was a one-off decrease in trucking revenue of $28.6 million.
Technical-grade chemicals cover substances such as hydrochloric acid, caustic soda and water-treatment chemicals, along with powerful cleaning agents for abattoirs and meat-processing establishments, according to Graham, pointing to a downturn in business in key accounts such as Jamaica Broilers and Caribbean Broilers.
In its first-quarter report ending July, Jamaica Broilers said earnings from its Jamaican operations dipped by nine per cent, amid a two per cent decline in revenue that was ascribed to the impact of Hurricane Beryl. The storm swiped Jamaica on July 3.
Graham said that where there is a slowdown at a ‘key account’ customer, it tends to affect Paramount as a supplier.
“To the extent that those are affected in the way they have been since Beryl, then if they have a downturn, we, too, will have a downturn,” he said.
Regarding the trucking revenue downturn, Graham said that even if there had been opportunities, Paramount would likely not have been able to take advantage because of a serious shortage of truck drivers. Paramount has eight tractor heads that are used to haul containers, but only two specialist drivers are available. The other six have been lured away by opportunities in Canada.
“If you talk to anybody who is in the trailer business, Zukie or anybody, they’ll tell you” about the challenges. “We have to train people internally; bring them up to par ...,” he said.
Paramount says it is focused on returning to profitability by squeezing more revenue out of its operating segments, monitoring industry trends, and adapting its business model to evolving market conditions.
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