Dairy Crest cheese sales remain on target but butter's slide continues

14th Jul 2015 08:31

(ShareCast News) - Sales at Dairy Crest remained broadly in line with forecasts in the second quarter, with higher revenues from Cathedral City cheese and Frylight cooking oil counterbalanced by continuing challenges from a declining butters and spreads market.Ahead of its annual shareholder meeting the FTSE 250 company said it expected sales of its key brands, Cathedral City, Clover, Country Life and Frylight, to perform strongly as the year progresses, with the combined performance of the cheese and spreads businesses weighted towards the second half.Cathedral City had another strong quarter of sales and market share growth, becoming Britain's 16th largest grocery brand, while Frylight also enjoyed a strong quarter. However Clover and Country Life sales fell as the butter and spreads market continued to decline.Underlying cash generation has been good and Dairy Crest expects that as the year progresses, lower milk costs will make a "significant difference" to the carrying value of cheese stock and hence working capital.Last year, global dairy commodity prices fell steeply, with high milk production around the world and in the UK have lead to the company's purchase prices for milk droppig by around 25% across the year, reversing the increases paid in recent years."The year has started off as we expected," said chief executive Mark Allen. "Higher sales of Cathedral City and Frylight are encouraging in markets that remain challenging.""Dairy Crest is well positioned for profitable and sustainable growth. Our full year expectations remain unchanged."He noted that projects to begin producing demineralised whey and galacto-oligosaccharide (GOS) from the Davidstow creamery are nearing completion and full benefits from this new sales channel are likely next year.Progress with the sale of the dairy operations, including the Frijj milkshake brand, assets to Muller, which has been approved by shareholders, is expected this to complete before the end of 2015, with the UK Competition & Markets Authority (CMA) before 21 August.Analysts at broker Shore Capital said their financial expectations for the full year remained unchanged after the update and no adjustment to consensus were anticipated.Clive Black and Darren Shirley wrote that while the CMA review process was "somewhat bizarre and frustrating", the competition regulator's judgements are now key in what they believe is a transformational year for the group."We harbour cautious optimism that suitable remedies can be found to meet the regulator's concerns on the proposed sale of Dairy Crest Dairies. Accordingly, it is our central expectation that approval will be completed by the end of September 2015 at the latest, hopefully by late August."