Davy Research |
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Glanbia
(GLB ID)
Maintains FY guidance; Global Nutritionals driving growth
10 May 2012
Aiden O' Donnell
| Closing Price: | 565c | Rating: | Outperform | 30/06/09 |
FACTS: In an IMS statement (covering the three-month period to the end of March) issued yesterday (May 9th) alongside its AGM, Glanbia has reiterated its FY guidance of EPS growth of 5-7% on a constant currency basis.
ANALYSIS: Revenues at group level (including JVs) increased 1.9% year-on-year with price +3.4% and volumes -1.5%.
US Cheese & Global Nutritionals: revenues increased by 9%, driven by strong growth (both in both price and volume terms) from the Global Nutritionals sub-segment. Revenues in US Cheese were lower due to lower cheese prices. Margin pressure remained in the Global Nutritionals business as raw material costs stayed high, especially in the sports nutrition business. The outlook for the first half is positive with revenue and operating profit growth anticipated.
Dairy Ireland: revenues declined 4.6% in Q1. Dairy Ingredients and Agri-business saw revenues fall in the period, while Consumer Products experienced a revenue increase (although margins remain squeezed). The H1 outlook is for a broadly flat year-on-year out-turn from a revenue perspective with profits and margins lower.
The contribution from Joint Ventures & Associates is expected to be lower at the half-year stage on a year-on-year basis as a result of lower cheese prices.
Net debt/EBITDA at the end of the period was 2.4x, down from 2.8x at the same point last year.
The statement confirms that discussions between the PLC and the Co-op and their respective advisors are ongoing as regards the potential options for the expansion of dairy processing in Ireland, in-line with what was outlined at the FY stage.
DAVY VIEW: Up to mid-teen revenue growth in performance nutrition and ingredient technologies is implicit in the Q1 sales performance of Glanbia’s US Cheese & Global Nutritionals activity. Carry over price rises to reflect the escalation in the cost of whey protein isolate were a feature in this, but there was volume growth also. Analogous evidence (GNC, Vitamin Shoppe) points to continuing strong volume growth in sports nutrition supplements and in nutritional supplements (especially for beverages) in general despite the hefty price increases that have occurred. There are few (food) consumption items with this characteristic. Maintaining guidance in the context of a more variable and weaker pricing environment for commodity dairy products this year is a tribute to the robustness of nutritionals. The activity overshadows that of others in the group as regards growth, but we are edging closer to the moment (post milk quota removal in 2015) when Dairy Ireland will be achieving strong volume growth, albeit not with the linearity exhibited by nutritional supplements.