Glanbia predicts up to 8% rise in earnings

EARNINGS AT food conglomerate Glanbia may increase as much as 8 per cent this year as economies strengthen and demand for its dairy products improves after a “difficult” year in 2009.

In a trading statement, the company said the downturn in global dairy markets seen in the first half of the year, lower US cheese prices and weak consumer demand led to “an unprecedented trading environment”.

Glanbia said it was planning further cost reductions in 2010 in its Irish dairy unit, with a net provision of about €15 million provided for in 2009, mainly relating to redundancies.

In November, the company announced it was seeking up to 65 voluntary redundancies between plants in Ballyragget, Co Kilkenny, and Virginia, Co Cavan.

Earnings per share are predicted to be 30-31 cent for the year, in line with revised guidance announced earlier in 2009.

Glanbia said it expected a net exceptional credit after tax of about €17 million for the year.

Its interim trading statement in November also reiterated a warning that results for its dairy segment in Ireland would be considerably lower overall than in 2008. Glanbia repeated that warning yesterday, cautioning that agribusiness would also be lower.

“For most of the year, the decline in global dairy markets created a very difficult environment for the Irish dairy ingredients business. Prices and returns for dairy processors and suppliers were below the cost of production, which gave rise to a major first-time loss in Irish dairy ingredients for the full year,” the company said in its statement.

It added that prices on consumer products were reduced across a range of product lines in the latter part of 2009, in response to a “very competitive” Irish food retail market.

Its US cheese and global nutritionals division is expected to deliver results better than 2008 figures. A review of the group’s pension arrangements was completed in 2009, with the resulting revisions to the overall group pension arrangements now being finalised.

These give rise to a net reduction in pension liabilities, which will result in a 2009 exceptional credit of approximately €50 million.

Glanbia remained cautious with its outlook for the coming year.

“Trading conditions improved somewhat in the later stages of 2009 with an uplift in global dairy and US cheese markets. However, markets remain volatile and consumer sentiment is fragile,” the company said.

The group said current forecasts were for earnings growth of 6 per cent to 8 per cent in 2010.

In a note, Davy food analyst John O’Reilly said Glanbia’s cautious stance was understandable given last year’s volatile dairy markets.

“Overall, we believe the out-turn is a good one in the circumstance of commodity dairy processing last year,” Mr O’Reilly said.

“The Irish ingredients out-turn should not be permitted to obscure how well the overseas strategy in cheese and nutritionals is succeeding and developing.”

Glanbia closed up four cent at €2.89 on the Iseq index yesterday.