Over the next six months we will get a great insight into how branded sales will perform when prices rise to new levels.

Glanbia plc announced very positive half-year results on Wednesday this week.

Its share price took an immediate bounce, rising to over €12.50 per share, still short of the €15 per share this time last year. Passing price increases up the chain is a big part of the improved Glanbia financial performance. It has passed increases up the line while sales volumes have held solid.

Glanbia plc revenues are up while earnings (EBIDTA) are down slightly on a constant currency basis. However, a strong tailwind on currency means earnings per share are up 7.1% on a reported basis, but, down 3.8% on a constant currency basis.

Level out

Glanbia management say earnings for the year will level out and improve and the earnings decline is down to a strong comparator for the first half of 2021. The basic earning per share is 66.13c versus 27.9c for the first half of 2021.

So what’s driving the more positive numbers? The real shift has come in price. Glanbia has shifted up the price of what it is selling. Yes, there has been some small volume growth, but the big change is in price inflation. Interestingly, there will be even more upward price movement before the end of the year.

Within Glanbia, the big movement has been in its performance nutrition business, particularly through its Optimum Nutrition brand.

Optimum accounts for over 52.8% of revenues in this performance nutrition division. In the first half of the year, like-for-like sales growth was up 23% on a constant currency basis and consumption in the US was up 32%.

The other businesses in this category for Glanbia are its healthy lifestyle brands; think!, Isopure and Amazing grass alongside its weight management brand Slimfast.

Talbot remains resolute that Slimfast can turn around

The think! and Isopure brands show like-for-like sales growth of 28%, with US consumption up 47%.

However, the Slimfast category continues to go backwards. Sales growth is down 12% and US consumption is down 17%.

Talbot remains resolute that Slimfast can turn around and a brand refresh is planned with the hope that a new fad called “intermittent fasting” might help stop this category declining further.

Numbers are poor

So, the numbers on Slimfast are again very poor. In the past, Talbot has suggested COVID-19 and no holidays or public events were a key reason for poor demand for slimming products.

While COVID-19 restrictions have largely been abandoned and events are up and running, Talbot is kicking a turnaround in Slimfast fortunes out to early 2023 to let a brand refresh kick in and the slimming market improve.

Back to powders. Can Optimum Nutrition continue to beat expectations if the price goes even higher?

Talbot is confident it can but is not complacent. She maintains Optimum Nutrition is still good value so affordability is not an issue. To date, volume has held up really well, she says. She did say the company has built some caution into volume for the second half of the year and is continuing to invest behind the brand.

Raw materials

The other piece that Glanbia is benefiting from right now is that it is not in the market for whey powder, the key raw ingredient for Optimum Nutrition.

In late 2021, it locked in 2022 volumes at 2021 prices. So while the price of a tonne of whey has shifted from €5,500/t to over €18,000/t, this hasn’t affected Glanbia costs just yet as it had a deal done.

However, it will have to come back to the market and plan 2023 volumes very soon and new prices will be at a different level to what price it had locked in late 2021.

While acknowledging raw material prices are up considerably and knowing that pricing too high can affect demand, Talbot says the real high prices for high-end whey products are coming down.

Additionally, she says since that hedge in late 2021, prices of the end product have gone up so they are better positioned to handle extra cost.

Watching volume sales to track demand will be high priority for the second half of 2022 as end product prices continue to rise.