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Japan-Update

Calbee seen posting record profit on healthy breakfast cereal

But April-December growth was hampered by poor overseas performance

Calbee raised awareness of the Frugra breakfast cereal by offering samples at shopping centers.

TOKYO -- Japanese snack maker Calbee will likely report a group operating profit of roughly 23.5 billion yen ($206 million) for the nine months ended in December, up about 8% on the year and a new record for the period, thanks largely to a popular line of granola cereal.

Sales apparently climbed 3% to around 190 billion yen, propelled by the Frugra brand of cereal. The mix of grains, brown rice, nuts, dry fruits and other ingredients has attracted consumers at home and abroad.

The cereal has found a following among health-conscious Japanese. Calbee helped boost awareness by providing samples at shopping centers and holding other health-themed event. As a result, Frugra's customer demographic spans young women to seniors.

Moreover, many Chinese tourists are buying Frugra in Japan to take home with them. Sales of the cereal reportedly spiked in October of last year during China's National Day holidays. Although the Japanese cereal market has only expanded by a few percentage points of late, Frugra's nine-month revenue likely surged about 50%.

However, Calbee's overseas operations have apparently slipped from a year earlier in both sales and profit. North American demand for Harvest Snaps, the crunchy snack food made from beans, has dipped below expectations. Calbee is busy developing sales networks, and a real recovery is expected to occur as early as the current quarter ending March.

In South Korea, the craze for Honey Butter Chips has died down. Although Calbee has built a new plant to handle expanded production, capacity utilization has not risen.  

Due to last summer's typhoon damage in Hokkaido, the company is struggling to procure enough potatoes to make chips. Worried that it will not be able to supply an increase in sales, Calbee is delaying the release of new products.

Investors remain unconvinced that the company has much margin for growth. On Dec. 6, the share price hit a year-to-date low of 3,320 yen. On Wednesday, it closed at 3,485 yen. Calbee aims to lift operating profit by 20%, but the pace this fiscal year will likely be about half that figure.

Calbee "has raised profit by improving production efficiency for potato chips, but that's approaching its limit," said Satoshi Fujiwara at Nomura Securities. "In order for growth expectations to return, a recovery in the overseas business is needed."

Calbee is expected to report quarterly results next Wednesday.

(Nikkei)

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