Atria and HKFoods: Meat prices and weak demand challenge earnings growth

Translation: Original published in Finnish on 4/10/2025 at 7:25 am EET.

Meat prices in Finland have so far developed quite moderately compared to the increases seen in other European markets. However, there has recently been a shortage of beef, which is likely to be reflected moderately in domestic raw material prices in the near future. In addition to the moderate tightening of the cost environment, we also expect the demand environment to be somewhat challenging for meat companies in the first months of the year. As a result, we expect Atria's and HKFoods' earnings growth to remain moderate this year.

Beef shortage may be slightly reflected in Q1 sales figures

There has been a shortage of beef in the Finnish market recently, which has been reflected, for example, in a shortage of cheaper meat products such as minced meat on retail shelves. The shortage of raw material may have a slight negative impact on the Q1 sales volumes of meat processors HKFoods and Atria. Beef production has declined in Finland as the number of dairy farms, for example, has decreased due to lower milk consumption. In the longer term, demand for red meat is also declining and demand for beef cuts in particular has been sluggish recently. The availability of beef may fluctuate from time to time, so the shortage may not be chronic.

Upward pressure on beef prices

Domestically, a moderate decline in Finnish producer prices for meat has been observed in 2024, and the trend has been quite stable in 2025. There has been a slight upward shift in the beef price data in the very last few weeks, but our understanding is that the most recent price increases may not yet be reflected in the data. In the recent past, Finland's development has clearly diverged from neighboring markets such as Sweden and Denmark, where beef prices have risen by around 20% year-on-year. However, according to our records, the price of beef has now started to rise in Finland as well. The relatively low level of domestic meat prices may be influenced, for example, by the robust grain harvest in the summer of 2024, which has lowered feed costs.

Source: Farmit.net

Fragile demand environment could limit margin development in 2025

Both Atria and HKFoods have managed to significantly increase their results in recent years, largely due to investments made by the companies to raise production efficiency. Atria's gross margin improved to 10.9% in 2024, after being in the inflation-weighted range of 9.6-9.9% in 2022-23. Historically, the company has been able to generate even higher margins than today. HKFoods, on the other hand, was able to increase its gross margin to 7.7% in 2024 (2022-23: 5.3-6.8%), its highest margin in at least the past decade. We forecast that both companies will only be able to improve their gross margins very modestly in 2025 (0.1-0.2%). Of course, the companies' efficiency investments are supporting margins. However, we estimate that the demand environment in Finland has been tough for the companies, as new dietary recommendations have at least temporarily reduced demand for cold cuts, while higher unemployment and economic uncertainty are likely to have affected consumers' purchasing behavior. At the same time, the cost environment has provided a moderate headwind to profitability due to higher beef prices, while the cost environment in 2024 was, in our view, actually more favorable than usual for the companies. Atria is also suffering from a sharp rise in beef prices in Sweden, where it is a major producer of ground beef patties.

Our EBIT forecasts assume a stable operating result for Atria in 2025 compared to 2024. We forecast HKFoods' adjusted EBIT to improve by around 1 MEUR. These forecasts include cautious assumptions about the development of the operating environment. Atria's revenue guidance for 2025 is downward and HKFoods' is upward. The companies' earnings drivers are similar in many respects, but HKFoods' expected benefits from increased operational efficiency are likely to be relatively higher than Atria's, partly due to a weaker starting position in terms of profitability and an increase in the level of investments made possible by a structural change.

Source: Inderes’ estimate