Irish food group Glanbia is taking an “aggressive” look at its domestic commodity and processing business after the company’s half-year earnings dropped 28% on low dairy prices.

Speaking on Glanbia’s earnings conference call today (26 August), MD John Moloney said there is a “significant” amount of work under way within the company’s dairy ingredients business, with a “reasonable” level of cost reduction planned.

“Dairy ingredients is probably the single biggest issue impacting the group overall,” Moloney told analysts. “A EUR90m (US$129m) fall in revenue compared to the same period last year. You will have seen cheddar cheese prices come down by 33% and butter by 18% – all commodity products traded on a global basis. So that’s been the impact in that business.

He added: “There has been a reasonable level of cost reduction and further significant cuts going on, and we are taking an aggressive look at the shape and activity around that business as to how it can be further restructured, which we would expect to get further benefits out of as we go forward.”

The company today posted a drop in pre-tax profits to EUR38m from EUR53.1m in the previous year. Revenue dropped 14.6% to EUR994.9m for the period.

Glanbia blamed a sharp decline in international dairy prices, a “dramatic” reduction in dairy product returns, and weaker consumer confidence and demand.

However, Moloney (pictured) told analysts that the long-term outlook for the global dairy sector appears positive.

“The dairy outlook, long-term, is very positive. The long-term dairy consumption outlook in the US is looking quite positive and we see some signs of recovery in south-east Asia. Therefore, with the adapting cost-structure of the business and the progress we’ve made, the group is well positioned for the future as the economic conditions improve.

He added: “I’d like to believe we have a level of stability, and as milk supply rebalances in certain regions, which it is doing, and demand picks up, then I see a recovery in commodity dairy products, but I think it’ll be slow into the first half of next year.”

Glanbia’s cost cutting is expected to be completed and announced in the next few weeks.