Rising prices to hit butter margins at Dairy Crest

Over the last twelve months Dairy Crest Group’s share price has increased from 0.00 to 663, changing by 0%.

In a trading update for the six months to September 30, Dairy Crest said it expects its Cathedral City lines to suffer a “small volume decline” in the first half.

In a statement, the firm said the Clover, Country Life and Frylight brands were all showing strong volume growth, building on momentum from the second half of past year. The brand was relaunched in the first half with new branding and packaging. In order to maintain the brand’s premium positioning within the category we have chosen to discount less than our competitors during the period. Its production efficiency programmes at its demineralised whey and galacto-oligosaccharide facilities continue to progress. “Reduced capital expenditure and strong underlying cash flow means that the increase in net debt in the first half of this year is anticipated to be lower than that seen in 2015”.

“Gentle inflation is good for Dairy Crest, as getting higher prices for our products is generally speaking good news, but hugely volatile inflation, as we’ve seen in cream, is a short term shock to the system”.

Three of the leading brands – Clover, Country Life and Frylight – achieved strong volume growth and continued to increase market share, said the business.

Overall for chief executive Mark Allen it was a good performance and he was pleased with the “very positive customer response to the Cathedral City refresh which should underpin future growth of the brand”.

While Dairy Crest was expected to benefit from both United Kingdom inflation and global dairy prices over the medium term, in the short term, the analysts advised keeping “a cautionary eye” on the United Kingdom cream price.

The company said it increased the price it pays to farmers for milk by 12 percent this year.

“The one caveat is that higher cream prices (that have doubled in just under 3 months) may have an impact on the Spreads division in H2, although this may be partially/largely negated by cheese stock profits”. As a result, margins have “improved” and Dairy Crest predicted volumes will “improve” in the second half.

He added: ‘Dairy Crest now has a well invested business with strong branded positions and a growing exposure to the infant formula market.