Dairy Crest has said that it remains on-track to meet full-year earnings expectations as the growth of Cathedral City cheese meant sales at its cheese and spreads business are in line with last year, despite a drop in spreads sales.
In aggregate, sales of Dairy Crest's four key brands – Cathedral City, Clover, Country Life and Frylight – were "in line" with the first quarter of last year. Dairy Crest said Cathedral City had another "strong quarter" that saw it gain market share. Frylight also continued to perform "very strongly".
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However, the company noted, Clover and Country Life sales have fallen in a butter and spreads market that "continues to decline".
According to Jefferies analyst Martin Deboo, this decline is a consequence of the down market and lower pricing. "We see this as an extension of the trends in H2 FY15, where Clover and Country Life sales look to have fallen by a mid-teens percentage. We think this is due to ongoing market weakness and sharply falling prices reflecting partial pass-on of lower cream prices. We note, however, that spreads margins expanded in H2 FY15 in a similar climate of sale declines," he wrote in a note to investors.
Nevertheless, Dairy Crest remained upbeat on the prospects for its largest brands in the remainder of the year, with improvements expected in the second half. "We expect sales of our key brands to perform strongly as the year progresses. However, as previously announced, the combined performance of our cheese and spreads businesses will be weighted towards the second half," the company said.
The group's investment in demineralised whey powder and galacto-oligosaccharide capacity at its Davidstow creamery is "nearing completion" and Dairy Crest said it expects this revenue stream to open up in the current fiscal.
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By GlobalDataMeanwhile, the company expects a further update on sale of Dairy Crest's liquid milk operations – which is pending competition approval – on 21 August.
CEO Mark Allen said: "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."
