Neto Holdings in the First Quarter: Sales Jumped, but Margin and Cash Flow Lagged
Neto Holdings delivered 20.5% sales growth and higher net profit in the first quarter, but operating profit fell and operating cash flow stayed negative at NIS 141.9 million. After the Passover timing boost, strong imports, and heavy customer credit, the next proof point is whether receivables turn into cash and margin stabilizes.
Neto Holdings opened 2026 with a quarter that again shows the group's commercial strength, but also the economic cost of that strength. Sales rose 20.5% to NIS 1.57 billion, helped by Passover falling on April 1 and most pre-holiday sales being included in the first quarter, but gross margin fell from 14.1% to 12.3% and operating profit after other income and expenses declined to NIS 88.7 million. Net profit rose to NIS 64.1 million mainly because finance expenses and tax fell, not because the core operating engine improved. Operating cash flow remained negative at NIS 141.9 million, almost the same as in the comparable quarter, because receivables rose much faster than inventory was released. The quarter therefore does not close the question raised in the prior annual analysis on sales growth versus cash trapped in working capital. It sharpens it: the company knows how to generate volume, but still has to prove that this volume stays profitable, comes back as cash, and reaches the parent-company shareholder layer.
The Business Is Food Distribution, but the Quarter Is About Customer Credit
The company operates through three engines: group plants, imports, and the local market. This is not just a food company that sells more ahead of holidays. It is a distribution and import machine with heavy working capital, where inventory, customer credit, procurement terms, and the minority-shareholder layer determine how much of the profit is truly accessible to public-company shareholders.
The positive point is clear: demand and commercial execution are there. Sales rose across all operating segments, and imports were the strongest engine. But the quarter also had a powerful seasonal boost, because most Passover-related sales were recognized in the first quarter. In this sector, pre-holiday sales are not only profit. They are also customer credit, inventory moving between periods, and bank lines being used.
That is why the key number is not sales growth alone. The practical question is whether that growth remains inside the company after three filters: gross margin, working capital, and the Neto Melinda layer, where minority interests are significant. In the first quarter, the answer is still mixed: profit attributable to parent shareholders rose, but the capture rate from consolidated profit stayed near 42%, and operating cash flow did not recover.
Growth Came Through Imports and Passover, While Margin Fell
The uncomfortable finding is the gap between sales momentum and profit quality. Group revenue increased by NIS 267.2 million versus the comparable quarter, but operating profit after other income and expenses fell by NIS 4.9 million. That gap is too large to call the quarter a clear operating improvement.
| Segment | Q1 2026 Revenue | Change vs. Q1 2025 | Q1 2026 Segment Result | Result Change | Q1 2026 Segment Result Margin |
|---|---|---|---|---|---|
| Group plants | NIS 206.2 million | 12.6% | NIS 6.8 million | 17.4%- | 3.3% |
| Imports | NIS 686.8 million | 28.4% | NIS 53.2 million | 6.0%- | 7.7% |
| Local market | NIS 674.2 million | 15.8% | NIS 28.7 million | 0.1%- | 4.3% |
Imports tell most of the story. The segment added more than NIS 152 million of revenue, but its result fell by roughly NIS 3.4 million. The imports segment result margin fell from about 10.6% to about 7.7%. That does not mean imports became a weak activity, but it does mean the quarter bought volume at a lower margin.
The company attributes the drop in gross margin to a point-in-time deterioration in trading prices. That explanation matters because it frames the quarter as a short transition rather than necessarily as a structural change. Still, until margin returns toward the 2025 level or at least stabilizes above the first-quarter level, the market does not have proof that current growth is as profitable as prior growth.
Net Profit Rose Because Tax and Financing Helped
Group net profit rose 19.4% to NIS 64.1 million, and profit attributable to parent shareholders rose 18.7% to NIS 27.2 million. That looks good, but the improvement did not come from the main operating line. Operating profit after other income and expenses fell to NIS 88.7 million, compared with NIS 93.6 million in the comparable quarter.
Two line items rescued the bottom line. Finance expenses fell to NIS 6.6 million from NIS 11.6 million in the comparable quarter, and tax expenses fell to NIS 20.5 million from NIS 30.0 million. In the comparable quarter, tax expenses included the closing of tax assessments at a subsidiary through 2023, including a 2024 provision, totaling about NIS 9 million. Without that easier tax comparison, the increase in net profit would have looked much less strong.
The minority-interest layer remains a central filter. Out of NIS 64.1 million of net profit, NIS 36.9 million was attributed to non-controlling interests and NIS 27.2 million to parent shareholders. The parent-shareholder capture rate from consolidated profit was about 42.4%, almost unchanged from the comparable quarter. This is better than the full-year 2025 capture rate, but it is still not a structural change.
Cash Was Again Absorbed by Receivables
The follow-through needs to be measured in cash, not only in profit. Operating cash flow was negative at NIS 141.9 million, almost identical to negative NIS 144.8 million in the comparable quarter. In a quarter where sales jumped 20.5%, the lack of cash-flow improvement is a yellow flag.
Inventory is not the main culprit. Inventory fell by NIS 82.2 million from the beginning of the year, which is a positive sign after the prior year. The problem moved to customers: trade receivables rose by about NIS 299.9 million versus the end of 2025, and the cash-flow statement shows a NIS 322.8 million outflow from receivables and other debtors. In other words, sales were recognized, but a large part of the cash is still with customers.
All-in cash flexibility after actual cash uses remained tight. After negative operating cash flow, negative investing cash flow of NIS 9.4 million, and NIS 2.8 million of lease principal repayment, the company needed roughly NIS 154 million before additional bank credit. It funded almost all of that gap through a NIS 141.9 million increase in short-term bank credit, while cash fell to NIS 11.7 million.
At the parent-company level, the picture is even sharper. The parent recorded NIS 27.2 million of profit through investees, but its operating cash flow was only NIS 0.3 million, and it received no dividends from investees during the quarter. Parent-level short-term bank debt stood at NIS 206.1 million, against negligible cash. Value created in the group therefore still needs a dividend or disposal route before it becomes accessible cash at the public-company layer.
There is also a relatively small post-period event that fits the same quality-of-growth question. After the balance-sheet date, the general meeting of Neto Melinda approved raising the regular-kosher poultry purchase cap from Tal Hal Yiska to up to 95% of annual regular-kosher poultry purchases, with no other change to the marketing agreement terms. When the quarter relies on high volume and customer credit, this kind of procurement concentration is not just a side note. In upcoming reports, the question is whether it supports availability and sales, or increases dependence on one supplier's terms.
Conclusions
The first quarter strengthens the view that the commercial business works, but it does not replace proof of quality. The company sold much more, preserved operational continuity during a complex security period, and increased profit attributable to parent shareholders. Against that, gross margin eroded, operating profit fell, and working capital again absorbed cash. The current conclusion is that the quarter is strong on volume and weaker on quality.
The next proof points are clear: lower receivables after Passover, gross margin moving back toward the 2025 level, continued control over short-term bank credit, and a better cash route to the parent-shareholder layer. The counter-thesis is that the first quarter simply captured Passover sales and customer credit before collection, so much of the negative cash flow may reverse in the second quarter. That is possible. But until collections show up in cash and imports return to a higher margin, the market is likely to measure the company less by the pace of sales and more by profit quality and post-holiday cash conversion.
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