Glanbia revises down earnings forecasts

Glanbia issued a profit warning today in response to what it termed as a sharp deterioration in global dairy markets over the last two months.

Glanbia issued a profit warning today in response to what it termed as a sharp deterioration in global dairy markets over the last two months.

The food group cut its earnings per share forecasts for this year to between 30 and 32 cent, down from earlier forecasts of 36 to 37 cent.

Despite significant reduction in the milk price the cost of this raw material is still higher than the market returns and remains at a level above which its subsidiary Food Ingredients Ireland can breakeven.

Glanbia recently cut the price it pays to farmers by 3.7 cent to 20 cent, a level the company accepts is below the cost of production.

“However, in the belief that dairy markets appear to have reached the bottom and with some recovery in markets anticipated in late-2009, Glanbia has decided to sustain this manufacturing milk price position.”

The company said to achieve breakeven for its Food Ingredients unit it should be paying 18 cent per litre but was willing to take a loss on this in the short-term.

“Despite resulting in a significant forecast loss at Food Ingredients Ireland, the Board believes this is an important step, in the current unprecedented circumstances, to help maintain its Irish dairy supply and trading base,” Glanbia said.

A spokeswoman added diary markets appeared to have bottomed-out.

Glanbia is also going to provided an €8 million loan fund available to manufacturing milk suppliers for funds which can be paid back over three-years.

Dairy market weakness was also likely to depress farm input sales and hit profits at Glanbia’s agribusiness unit.

John Moloney, Glanbia managing director said while global dairy market prices were at historic lows “in the longer-term, we are confident of Ireland’s ability to have a sustainable and profitable dairy sector, but this will require restructuring across the industry.”