Nongshim posts first operating loss from Korean sales in 24 years

South Korea’s top noodle maker Nongshim Co. has posted a quarterly operating loss from its domestic business – its first loss in 24 years – as the company was unable to raise product prices despite soaring raw material costs.

On a standalone basis, which excludes its overseas business, the company posted 3 billion won ($2.3 million) in operating loss in the second quarter, its first loss since the second quarter of 1998.

However, the company posted 7.3 billion won in operating profit from its global sales on the back of the growing popularity of K-food.

On a consolidated basis, Nongshim posted 4.3 billion won in operating profit on sales of 756.2 billion won in the April-June period, up 75.5% and 16.7%, respectively, from the year-earlier period.

“The steep rise in raw material prices amid worldwide inflation, coupled with the weak Korean won and higher logistics costs, all point to weak earnings for us,” said a Nongshim official.

Unlike its local rivals such as Ottogi Co. and Samyang Foods Co., Nongshim’s business is heavily focused on instant noodles, led by its signature product Shin Ramyun. The company’s instant noodles account for almost four-fifths of its total sales.

Launched in 1986, Shin Ramyun has been the dominant leader in the Korean instant noodle market for more than three decades.

The prices of wheat flour and palm oil surged in the second quarter due to Indonesia's ban on palm oil exports in April and India's wheat export ban in May.

Nongshim, which last raised its product prices in August 2021 for the first time in four years, couldn’t hike prices further because of the government’s price control of key foods, analysts said.

DIM OUTLOOK

“If Nongshim’s ramyun prices stay at the current level, the company’s operating profit will decline by 13% in the third quarter and 15% in the fourth quarter compared with the year-earlier period,” said Hana Financial Group analyst Shim Eun-joo.

As part of its efforts to take its ramyun products to the global market, Nongshim has particularly expanded its facilities in the US.

In April, the company opened its second US plant in California, next to its first factory in Los Angeles.

After building the old factory in 2005, Nongshim invested $120 million in the new plant to increase the production of its top sellers such as Shin Ramyun, Shin Ramyun Black and Hot & Spicy Bowl.

Its US sales jumped to $395 million last year, almost 10 times the $41.7 million in 2005. It aims to more than double its sales in the US to $800 million by 2025.

The South Korean noodle maker also plans to speed up the extension of its market presence in Latin America with the construction of the new US plant.

Nongshim founded its first overseas plant in Shanghai in 1996. Since then, it has focused on global expansion while operating six factories worldwide. The company plans to ramp up the overseas sales proportion from the current 40% to 50% in a few years.

Write to Kyeong-Je Han at hankyung@hankyung.com
In-Soo Nam edited this article.