UK milk processor Arla Foods this morning (24 January) issued a trading update predicting poor first half results due to a delay in implementing price increases.
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The company, which controls approximately 25% of the UK milk market, said that its performance had been hit by escalating costs, particularly packaging, utility and energy costs. In order to offset these, it had planned to raise prices. “This exercise has now been completed satisfactorily, but the process took longer than anticipated,” the statement said. This delay is expected to have a negative impact on the first 26 weeks of trading.
This has come as a surprise to market analysts, Justin Scarborough of Panmure Gordon told just-food, because the company had hoped to push price increases through ahead of Christmas. “We had assumed that Arla would aim to implement price increases between January and March,” Scarborough said.
Arla’s downbeat trading update has shaken confidence in the sector, with share values also declining in Arla peers Dairy Crest and Robert Wiseman. At 12.15 today, shares in Arla had fallen 2.9% to 64 pence, Dairy Crest was down 3.2% to 497 pence and Robert Wiseman declined 3.12% to 290.5 pence.
However, Scarborough said, both Dairy Crest and Robert Wiseman are aiming for price increases to come into effect in the coming month, as scheduled and on budget. Consequently, the decline in these companies’ share value should only represent a very short-lived fluctuation: “There should be no change to our estimates on these companies, therefore the decline, driven by general concerns, shouldn’t have any long-term consequences.”
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