Investors in Dairy Crest are likely to see a strong set of numbers tomorrow (18 May) when the UK dairy group issues its annual results.
In a trading update in March, the company behind brands including Cathedral City cheese and Clover butter, said full-year profits would be higher than the year before as lower costs buoy its dairies division.
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Dairy Crest said pre-tax profits in the year to the end of March would be “ahead” of the level posted at the end of the 2008/09 financial year.
The group said its dairies division had put in a “very strong” performance during the year as the unit benefited from lower costs.
However, the company said its spreads and cheese business, which also includes Country Life butter, would see investment in A&P weigh on earnings.
Nevertheless, Dairy Crest insisted the spending had paid off with its roster of five key brands – which also include Frijj milkshakes and St Hubert Omega 3 cheese – performing “strongly” against its previous fiscal year.
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By GlobalDataAnalysts at Evolution Securities are optimistic about Dairy Crest’s numbers and, crucially, its prospects for the current financial year.
In a note to clients, Alex Sloane said Evolution expects margins from Dairy Crest’s dairies business to have risen by 200 basis points in the year to 31 March to reach 2.7%.
The Evolution analysts also believe there is room for “significant improvement” in margins from the dairies division and argue that Dairy Crest could aim for margins of 4% “over the next few years”.
There is also optimism about Dairy Crest’s five core brands. Evolution argues that new TV ads over the last year “”should help drive growth in FY11 despite a difficult macro outlook and tougher comps”.
Marketing costs for Dairy Crest’s key brands will be a key issue for investors when management speaks to the City tomorrow, according to Charles Pick, research director at FinnCap.
Pick also suggested that industry watchers will be looking for Dairy Crest’s outlook on raw milk costs and whether the company can push through price rises at retail. There have been signs that wholesale prices for cheese, for instance, could jump this year.
With UK consumer confidence remaining fragile, the outlook for brand-owners like Dairy Crest, even after a pleasing financial year, remains anything but certain.
