Li & Fung net profit rises 24% on improving US orders

Li & Fung (0494.HKG), the world’s largest supplier of clothes and toys to retailers, reported a larger-than-expected gain in 2011 profit after orders picked up in the US, Bloomberg reported. CEO Bruce Rockowitz said customers are increasingly optimistic in the US, which generated 60% of Li & Fung’s US$20 billion of revenue last year. Costs as a percentage of sales declined in the second half of 2011, boosting net income 24% to US$681 million, above analyst expectations. Acquisitions have been driving earnings-per-share growth, noted Gary Pinge at Macquarie (MCQ.ASX). The HK-based company signed 18 deals in 2011, increasing its earnings by acquiring rivals and signing supply agreements to sell Western retailers such as Walmart (WMT.NYSE), Target (TGT.NYSE) and Kohl’s (KSS.NYSE) products mostly produced in Asia. “The key focus needs to be on the balance sheet and cash flows as well as what the organic growth is after stripping out all acquisitions,” said Pinge.