Shares in the global nutrition group Glanbia have closed at €16 today, after falling 9% on Wednesday’s opening price. The shares which reached peaks of €19.55 last July have been volatile ever since, hitting lows of €15.60 in October and then €15.66 last February.

The most recent drop follows the company’s interim management statement on Wednesday. In its first quarter trading update, Glanbia reiterated full year guidance of 8%-10% growth in adjusted earnings per share.

Even though both its performance nutrition and ingredients businesses delivered volume growth, overall volumes only increased a modest 0.5%, despite a number of acquisitions over the past year.

Acquisitions contributed 3.4% to revenues, but revenues, excluding joint ventures overall were back 1.9% compared to the same period last year. This was driven by a 5.8% decline in price.

Glanbia Performance Nutrition

GPN which accounts for 44% of earnings saw volumes increase 2% in the period. However prices declined by 6.5%, causing revenues to fall 5.6%. Acquisitions boosted revenues by 10.1%.

Overall volume growth was challenged by the strength of the US dollar making exports less competitive in non US markets. It also suffered declines in contract volumes on non branded products. Despite this it said that there was strong branded volume growth in the US.

It said margins for the first quarter were in line with the second half of 2015, meaning they were at least 14.7%. It is forecasting a further progression in this margin for the entire year. Overall it expects revenue growth to be in the mid single digit range.

Global Ingredients

The ingredients business, which accounts for 34% of total group earnings, saw revenues decline 5.2% in the period. This was mainly due to price declines of 6.7%. Volumes increased by 1.5% mainly driven by high-end whey ingredient sales. It is forecasting full year earnings growth versus 2015 mainly due to the impact of additional capacity and continued growth in value added systems.

Dairy Ireland

Dairy Ireland, which includes the consumer foods and agri division accounts for 9% of earnings. In the first three months volumes fell 3%. Revenues declined 6.2% driven by the volume decline and price decline of 3.6%. It is expecting the full year revenue to be flat on 2015, however margins are to improve.

Joint Ventures & Associates

Revenues from joint ventures and associates, which includes Glanbia Ingredients Ireland (GII) declined 8.3% in the period.

Volume grew by 8.0% as a direct result of increased milk supply, however prices fell 10.8%. The impact of the Nutricima disposal in Nigeria last year reduced revenue by 5.5% in the period. It is expecting the contribution from joint ventures and associates to be marginally behind 2015.

Glanbia's net debt at the end of the period increased €93m to €677m compared to that at year end 2015, driven by seasonal working capital requirements. Total 2016 capital expenditure is expected to be between €115 and €125 million.

Comment

Glanbia expects to deliver earnings growth of 8% to 10% in 2016. To achieve this ambitious growth target, it will need to squeeze every drop out of each division, including joint ventures.

Volume growth in performance nutrition has been driven by acquisitions. But this division has largely been a play around margin expansion over the past 12-18 months rather than volume expansion as it focused more on branded growth, at the expense of its contract manufacturing business.

The strengthening dollar is hampering export competitiveness (from the US businesses) so any progress here will depend on the relative strength of the dollar to the Euro over the coming months. Much of which is outside the control of the company.

The Dairy Ireland division performance is less clear as it includes a mix of feed, fertilizer and consumer foods. Consumer foods had performed well last year as it focused on more added value products however the recent loss of a large Tesco contract may impact performance in the second half of the year.

Overall, margins should be boosted given the falling dairy prices, as the cheaper milk feeds upwards into the Glanbia model. But milk processing is set to be a tight business this year with farm gate milk prices below the cost of production in all regions of the world. In these markets, the full supply chain hurts and it will be difficult for GII to hold onto its relatively high 4-5% margins it has recently enjoyed.

*All comparisons are on a constant currency basis

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