While dairy group Bega will accelerate its marketing spend on peanut butter, its key product – dairy products, led by cheese is facing a second half slow down, news that sent the shares lower yesterday.
Peanut butter is one of the brands acquired in last year’s purchase of the grocery business of Mondelez in Australia and New Zealand.
That $453 million purchase saw the focus on the buyback of the Vegemite brand by Bega, but since then much of the talk has been about the company’s ambitions for peanut butter products.
Bega said its December half year net profit rose 31% to $20.6 million as its new products lifted overall revenue and favourable seasonal conditions and greater intake of milk boosted its dairy operations. Revenue was up 13.5% to $705.2 million.
Bega Cheese’s statutory earnings before interest, taxation, depreciation and amortisation (EBITDA) for the six months to December 31 rose 46% to $51.7 million from the first half of 2016-17.
But in releasing the half-yearly results, Bega chairman Barry Irvin warned the first half earnings and profit gains were unlikely to be repeated in the second half of the year due to lower milk intake volumes
Mr Irvin said “the benefits of the increase in milk volumes in the first half due to a successful milk acquisition program and strong spring intake would not be repeated at the same level in the second half”.
Bega Cheese said normalised EBITDA was $70.1 million for the first six months of 2017-18, a rise of 65% from the previous corresponding period of $42.6 million.
Investors though didn’t like the news and sold off the shares. Shares in Bega dropped 6.4%, to $6.86.
Bega acquired Vegemite and Kraft peanut butter, which it has rebranded Bega peanut butter, in July 2017 as part of it purchase of the Mondelez Australia and New Zealand grocery business.
The deal was part of Bega’s strategy of diversifying away from dairy products to include higher-margin consumer goods.
Bega also recently acquired Australia’s largest peanuts processor, Peanut Company of Australia, with the aim of expanding peanut production in Australia and using all
local product in Bega peanut butter. Mr Irvin said peanut butter is getting more attention since Bega bought Kraft peanut butter, and was involved in a legal battle with Kraft-Heinz over the rights to the design of the jar.
Mr Irvin said the peanut butter market was currently very competitive and that had impacted margins, but Bega believed it was in a good position.
The troubles afflicting Victorian based rival, Murray Goulburn milk supply which has seen farmers moving to other producers such as Fonterra Australia and Bega, plus improved seasonal conditions saw Bega’s first half milk intake rise by 30% to 456 million litres in the first half, up from 347 million litres a year earlier.
Mr Irvin said most of the extra milk intake was directed into higher-value products such as cream cheese and mozzarella.
Mr Irvin said the global dairy market was softening, so it would be wrong for him to commit to a step-up in the price Bega pays farmers for their milk.
"We’re communicating to our suppliers that the market is not strengthening, it’s in fact softening, and we note that our competitors are doing the same," Mr Irvin said.
"At this stage, we think that the price will be held but beyond that we haven’t made any other commitment."
Interim dividend was up 0.5 cents to 5.5 cents fully franked