Land O'Lakes Dairy Foods division earnings decline in first half

by Keith Nunes
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ARDEN HILLS, MINN. — Land O’Lakes, Inc.’s Dairy Foods division recorded EBITDA of $56.7 million for the first six months of fiscal 2008. The results for the period ended June 29 compared unfavorably to EBITDA of $77.6 million the company recorded for the same period a year earlier. Division sales for the first six months of fiscal 2008 were $2.09 billion compared with $1.87 billion for the same period during the previous year.

"The primary reason for the reduction was declining prices in dairy powder and cheese during the first quarter versus increasing prices in 2007," said Dan Knutson, chief financial officer of Land O’Lakes, during a conference call with financial analysts on July 29. "We did make back some ground in the second quarter."

Mr. Knutson added that the company’s retail branded butter volume was down 2% versus 2007 as pricing concerns led consumers to favor private label products.

"Accordingly, our private label butter sales were up 4% year-to-date," he said. "Value-added cheese sales were up 1% as well."

The company’s international branded dairy sales for the first half were up 74% driven by the weakness in the U.S. dollar.

"However, note that international sales will only constitute about 4% of our value-added business," Mr. Knutson said. "Other volume categories were down so far this year, spreads and food service volumes were each down about 6% versus 2007."

Looking ahead to the rest of fiscal 2008, Mr. Knutson projected Dairy Foods divisions EBITDA of $94 million.

"This is down from 2007 actual results of $109 million, due to an expected shift toward more private label business in the higher price environment, plus an assumption of more volatile dairy markets this year," he said. "In 2007, markets were steadily increasing for much of the year, which is a more favorable environment than we have seen so far this year.

"In 2008, markets declined in the first quarter, then increased to even higher levels in the second quarter. Our current expectation is that the markets will moderate slightly in the second half, but will remain at attractive levels."

This article can also be found in the digital edition of Dairy Business News, August 19, 2008, starting on Page 6. Click here to search that archive.

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