Portfolio pruning and competition hit sales, Lion said

Portfolio pruning and competition hit sales, Lion said

Australian food and beverage group Lion has reported a 4.% drop in third-quarter sales from its dairy and soft drink business as it rationalises its portfolio and battles competition.

Lion, which yesterday (29 October) announced it had acquired nearly 10% of sought-after Australian dairy processor Warrnambool Cheese and Butter Factory, said sales from dairy and soft drinks were down 4.4% at A$1.83bn (US$1.74bn).

Reporting on its dairy and juice division, Lion said it had "continued to experience volume declines in price-driven categories such as juice and everyday cheese, as product rationalisation and heavy discounting continued".

The company, owned by Japan's Kirin Holdings, also warned it had seen a "significant" increase in farm-gate milk costs since the end of the quarter. It said the 2013/14 milk price, set in July, was up to 27% higher year-on-year based on the average price in some states.

"In the context of a highly competitive and deflationary retail environment, [the increase in milk prices] will place significant pressure on profitability," Lion said.

However, Lion enjoyed growing sales of flavoured milk, speciality cheese and Yoplait, for which it holds the local licence.

Lion, which owns brands including Dairy Farmers milk and Cracker Barrel cheese, is Australia's second-largest dairy company.

Yesterday, it said it had snapped up 9.99% of Warrnambool Cheese and Butter Factory, which is the subject of takeover bids from three firms.

WCB manufactures some of Lion's cheese brands, including Cracker Barrel. The acquisition of a stake in WCB is seen as a strategic move by Lion, with its manufacturing partner having attracted three full takeover bids.

Last week, Canadian dairy group Saputo made its second offer for WCB. Saputo's A$8-a-share bid for WCB is the highest on the table, worth more than offers from Australian dairy groups Murray Goulburn and Bega Cheese.