Inghams’ EBITDA Plunges 42% as Costs Surge; FY26 Guidance Cut

Flat Revenue Masks Underlying Margin Pressure

Inghams Group Limited’s FY26 interim results reveal a company grappling with rising costs and transitional inefficiencies despite stable top-line performance. Revenue held steady at AUD 1.61 billion, a marginal decline of 0.1% compared to the prior corresponding period, supported by modest net selling price growth across both Australian and New Zealand markets.

However, beneath the surface, the company’s earnings tell a more challenging story. EBITDA before accounting for lease impacts (pre AASB 16) fell sharply by 42.3% to AUD 58 million, reflecting increased operational costs, supply chain disruptions, and farming productivity issues, particularly in Australia.

Operational Challenges and Cost Inflation

Higher costs across farming, processing, and supply chain operations emerged towards the end of FY25 and persisted into the first half of FY26. Inghams highlighted elevated cost-to-serve expenses linked to onboarding new customers and products, alongside measures to reduce excess inventory. These factors, combined with inflationary pressures on labour, ingredients, utilities, and packaging, contributed to a 5% increase in total costs.

Despite these headwinds, the company made progress in reducing processed poultry inventories by AUD 27.1 million and implemented an organisational restructure aimed at simplifying operations and improving accountability, targeting annualised savings of AUD 8-10 million. The broader cost reduction program aims for AUD 60-80 million in annual savings.

Volume Trends and Customer Diversification

Core poultry volumes declined slightly by 0.7%, with Australian volumes down 0.5% and New Zealand volumes falling 1.6%, partly due to export market closures. Encouragingly, volume growth returned in the second quarter, driven by strong gains in Quick Service Restaurant (QSR) channels, including new supply agreements with Nando’s and McDonald’s.

Retail volumes in Australia showed resilience outside Woolworths, growing 16.6%, reflecting successful diversification of customer supply arrangements. Wholesale channel pricing also improved significantly, supporting margin recovery prospects.

Balance Sheet and Capital Management

Inghams’ net debt rose by AUD 35.7 million to AUD 466.2 million, pushing leverage to 2.4 times underlying EBITDA, above the company’s stated policy range of 1.0 to 2.0 times. This increase reflects lower earnings and ongoing capital expenditure commitments, including AUD 47.6 million spent in the half on sustaining and growth projects such as automation upgrades and new product capabilities.

The company maintained its interim fully franked dividend at 4.0 cents per share, representing a 70% payout ratio on underlying net profit after tax, signalling confidence in its cash flow generation despite earnings pressures.

Revised Guidance and Outlook

Reflecting the slower-than-expected operational improvements, Inghams revised its FY26 underlying EBITDA guidance down to AUD 180-200 million from AUD 215-230 million. The company expects the benefits of supply chain stabilisation, farming productivity gains, and the Ingleburn processing transition to materialise more heavily in the second half of FY26 and into FY27.

With inventory levels normalising and production settings stabilising, Inghams is positioning itself for improved earnings momentum, supported by ongoing customer diversification and cost-out initiatives. However, the path to recovery remains contingent on execution and external cost factors, including feed input prices and market demand.