Experts have attributed the drop to a decline in the price of cream, which has tumbled 11% during the third quarter of the year. The price has fallen a further 18% in January to £1,230/t.
Damian McNeela, an analyst at Panmure Gordon, said: “The dairies business continues to face a number of challenges, not least of which has been the recent decline in the cream price. As such, we now expect 2012 operating profits of £6M for the Dairies business compared with £27M last year.”
“The firm is planning to step up its cost savings initiatives and could potentially be able to seek a lower raw milk price from farmers.”
Majority stake
Dairy Crest reported an increase of like-for-like group sales of 2% for in the first nine months of the year. This excluded the disposal of its majority stake in Wexford Creamery, the firm revealed.
It warned, however, that trading for its dairies sector “remained difficult”, and said higher milk prices had also “adversely affected” profit for the business.
“Our focus remains on reducing the cost base as the best way to restore long-term profitability and our three-year investment programme is on track,” the firm said.
“We also aim to increase added value sales in this business and Frijj, Milk Bag and Milk&More sales continue to grow.”
Experts confirmed that growth in the firm’s branded businesses, which includes Cathedral City cheese and Clover spread, had offset the tough conditions for the dairies division.
Anticipated performance
Clive Black, an analyst at Shore Capital, said: “The mix of Dairy Crest profits for 2011 is slightly different to our expectations a year or so ago. The dairies performance remains weak, off-set by a more robust than anticipated performance from the consumer brands division.”
Black also said that the firm had been “stuck in the doldrums” since the rebasing of supermarket milk margins across the industry in 2010.
“To use a cricketing analogy in light of England’s dismal performance in the United Arab Emirates, Dairy Crest has in tough market conditions delivered a dot ball, through a straight bat to a tricky spun ball,” he added.
“In the big scheme of things with group like-for-like sales up 2%, core brand value sales 6% higher and cost savings on track (£20M in the year), we would be surprised to see material adjustments to market consensus forecasts for Dairy Crest's 2011/12 out-turn.”