Baladi in the First Quarter: Strong Margins, Heavy Working Capital, Internal Logistics

Baladi opened 2026 with a quarter that looks very strong in the income statement, but much less clean in cash flow. Revenue rose only 4%, while operating profit jumped to NIS 63.7 million on a stronger gross margin, lower operating cost ratios, and a one-off other income item, bringing net profit to NIS 42.7 million. The problem is that this profit did not reach the cash account during the quarter: operating cash flow was negative NIS 26.0 million, mainly because customers, other receivables, and inventory all increased. At the same time, the logistics center continues to prove internal value inside the food group, but it still barely proves an external business: external revenue fell to just NIS 0.3 million, while segment profit actually increased. This is not a weak report. It supports the view that the company can improve profitability even without rapid revenue growth. But it also sharpens what the market needs to see over the next few quarters: profit that starts converting into cash, more meaningful external logistics revenue, and progress in Brazil that moves beyond regulatory status.

Profit Came From Three Sources, but Logistics Stayed Internal

Baladi is no longer only a food importer and marketer whose entire story is determined by sales volume. The first quarter shows a company with three different engines: group plants, trading, and the logistics center in Timorim. Trading is still the largest revenue engine, but the profit improvement came from a combination of more profitable trading, fast growth in the plants, and logistics activity that still works mainly for the group itself.

The mistake in a quick interpretation of the quarter would be to focus only on the 55% jump in operating profit. That increase is real, but it did not come from the same place in every segment. The plants segment grew quickly in revenue, but its operating margin declined to about 21% from about 25% in the comparable quarter. Trading barely grew in revenue, but operating profit rose to NIS 41.2 million and the operating margin improved to about 13% from about 9%. The logistics center is the most interesting case: external revenue almost disappeared, yet segment profit rose to NIS 8.1 million.

The implication is that a strong first quarter is not enough to call 2026 a breakout year. It does make it a better proof year. If trading keeps a higher profitability level, and the plants maintain sales momentum without further margin erosion, 2025 operating profit will look less like a one-off peak. But the logistics center, one of the main checkpoints after the prior logistics analysis, so far strengthens mainly the internal side of the story. Inter-segment logistics revenue rose to NIS 27.1 million from NIS 22.6 million in the comparable quarter, but external revenue fell to only NIS 334 thousand. For now, its economic value should be read more as infrastructure that improves the food group's margin and less as a broad external logistics business.

Profit Improved, Cash Moved Into Working Capital

The most important gap this quarter is between the income statement and cash flow. Net profit of NIS 42.7 million should have created comfort, but operating cash flow was negative NIS 26.0 million. That does not prove structural weakness, because the first quarter in food importing can be affected by seasonality, inventory, and holiday timing. Still, for a company whose 2025 story moved from balance-sheet cleanup to cash quality, it is a yellow flag that should stay central.

The numbers explaining the gap are clear: customers increased by NIS 51.6 million, other receivables together with long-term receivables increased by NIS 32.0 million, and inventory increased by NIS 11.3 million. Against that, payables and other credit balances contributed NIS 15.1 million, but suppliers and service providers fell by NIS 5.8 million. The profit was created, but a meaningful part of it stayed with customers, supplier advances, prepaid expenses, and inventory.

Here the cash framing matters. On a normalized operating cash-generation basis, profitability improved and depreciation is low relative to profit, so the operating base looks better than it did a year ago. On an all-in cash-flexibility basis after all actual cash uses, the quarter consumed NIS 32.9 million: negative operating cash flow of NIS 26.0 million, investing cash use of NIS 0.6 million, and financing cash use of NIS 6.3 million, including interest, leases, and paid dividends, partly offset by warrant exercises and a small increase in short-term credit. Cash therefore fell from NIS 72.4 million at the end of 2025 to NIS 39.5 million at the end of March 2026.

This does not take Baladi back to its pre-IPO balance-sheet position. Short-term bank credit remains very low, and the company itself is not using its approved credit lines. But it does mean that the operating improvement still needs to pass through collections, inventory, and credit terms before it deserves full cash-quality credit.

Brazil, the Rating, and Dividends Keep the Proof Points Open

Brazil was the main proof point in the previous annual analysis and in the focused analysis of the regulatory approval. The first quarter does not change the basic conclusion: the administrative approval advanced, but actual imports and sales still did not appear in the numbers. On February 12, 2026, the Ministry of Agriculture approved the inclusion of the Brazilian plant in the list of plants permitted to export poultry to Israel, but this activity still depends on further steps.

Two post-period details sharpen the uncertainty. The first is the kosher-certification track: in the petition to the High Court, the Chief Rabbinate updated that it had established a team to examine the issue, with the last date for an update on its emerging recommendations set for May 27, 2026. The second is an administrative petition filed in May 2026 by the Israel Poultry Growers Association against the Ministry of Agriculture's decision to include the plant in the permitted import list, with respondents due to file their answers by June 11, 2026.

At the same time, the board approved an engagement, including a loan in amounts that are not material to the company, to expand production activity in South America. That indicates the company does not see Brazil as a theoretical event only. But as long as there is no disclosure of actual import, volume, price, margin, or return on investment, Brazil remains a commercial option waiting for proof, not an earnings engine already inside the quarter.

On financing, the picture is more comfortable but not fully separated from the cash question. The group's approved bank credit lines total about NIS 522.6 million, and total financial utilization was only NIS 5.0 million, while the company itself is not using its approved lines. In the bonds, equity stands at about NIS 529 million and net financial debt to EBITDA is about 1, so there is no ordinary covenant pressure. The debt-to-collateral ratio, about 79%, is closer to the 82% distribution limitation, and after the balance-sheet date the company and the bonds received an A3.il rating with a stable outlook.

Distribution remains a liquidity-quality issue, as discussed in the cash-access analysis. On March 25, 2026, the board approved a dividend of about NIS 10 million, and after the balance-sheet date it approved another NIS 10 million distribution that had not yet been paid. The controlling shareholder's proportional share was recorded as a long-term liability payable after repayment of the loan given to a company under his control, so other long-term liabilities rose to NIS 21.8 million from NIS 17.1 million at the end of 2025. The dividend is not problematic by itself, but it keeps alive the question of how much cash and working capital is truly free for business use.

What the Next Report Needs to Prove

The first quarter improves the understanding of Baladi, but does not close it. The company showed that it can maintain high sales volume and materially improve profitability even without sharp revenue growth. That matters, because after 2025 the question was no longer whether the balance sheet had stabilized, but whether the business was beginning to generate higher-quality earnings. This quarter's answer is positive on profitability, mixed on cash flow, and more negative on the external-growth proof for the logistics center.

The point that will decide the next few quarters is not another accounting profit jump, but conversion into cash and proven activity. Operating cash flow needs to turn positive again without relying on short-term credit. The logistics center needs to show whether it has meaningful external customers or is mostly a profitable internal infrastructure layer. Brazil needs to move from permits, petitions, and review teams into actual import and sales. If those three things start moving together, the first quarter will look like a good opening to a year of quality improvement. If not, Baladi will remain a company with strong profitability but three blockers that keep the story less clean: working capital, access to cash, and proof of the new growth engines.