Glanbia profit, sales fall on depressed dairy markets

by Eric Schroeder
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KILKENNY, IRELAND — In what the company’s top executive described as "a difficult six months," pre-tax profit at Glanbia P.L.C. in the first half ended July 4 fell 28% to €38 million ($55 million) while sales declined 15% to €944.9 million ($1,377.3 million).

"A growing contribution from higher margin businesses and strategic cost reduction program have enabled us to counterbalance unprecedented market circumstances and deliver a reasonable set of results despite a very substantial first time loss in Irish Dairy Ingredients," said John Moloney, group managing director of Glanbia, an international dairy food company with interests in the U.S. "It has been, without a doubt, a difficult six months. The sustained downturn in the global economy led to weakening consumer confidence. In addition, international dairy prices were sharply down on 2008 resulting in a dramatic reduction in dairy product returns and U.S. cheese prices reached historic lows."

Operating profit within the company’s U.S. Cheese and Global Nutritionals segment rose 53% in the first half of fiscal 2009 to €44.9 million ($65.3 million) on a 1.7% gain in sales to €401.5 million ($583.9 million).

Glanbia said the acquisition of Aurora, Ill.-based Optimum Nutrition in August 2008 helped offset a decline in revenue driven by lower market pricing for cheese and certain nutritional products. The market for U.S. cheese, meanwhile, delivered a "good performance" in a volatile market environment, Glanbia said.

Looking ahead to the remainder of fiscal 2009, Glanbia said the U.S. cheese market is forecast to remain relatively low for the second half of 2009.

"U.S. milk production is expected to continue to contract in response to the current low milk price and as a result some rise in market prices is expected over the medium term," the company said. "However, average 2009 prices are likely to remain significantly below 2008 levels. While demand remains robust, a full-year decline in revenue and operating profit is expected as a consequence of significantly lower cheese markets throughout this year. U.S. cheese operations continue to deliver an excellent cost and operational performance."

In contrast to the strength in the U.S. Cheese and Global Nutritionals business, Glanbia’s Dairy Ireland unit sustained a 77% decline in operating profit to €5.9 million ($8.6 million). Sales in the unit fell 20% to €540.5 million ($785.6 million).

Glanbia said the decline in the segment reflected a significant loss in dairy ingredients, which was adversely affected by trends in global dairy markets. Also contributing to the decline were weaker consumer confidence, growing value consciousness and an increase in sterling-based imports that helped create an extremely competitive food retailing environment in Ireland.

Although full-year operating profit and operating margin for the Dairy Ireland unit are expected to be significantly lower than in 2008, Glanbia said some seasonal uplift in global dairy markets is expected in the second half of fiscal 2009.

This article can also be found in the digital edition of Food Business News, September 15, 2009, starting on Page 61. Click here to search that archive.

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