After a difficult first half to 2020, Glanbia posted a robust set of third-quarter results on Thursday morning that point towards a decent recovery in its core performance nutrition business.

For the three-month period to 3 October, Glanbia said like-for-like sales were up 3.1% year on year thanks to sales price increases of 4.8% more than offsetting a 1.7% dip in sales volumes.

Thanks to strong operating cashflow in the period, Glanbia was able to reduce its net debt by €188m to just over €628m, leaving the group with a net debt to earnings ratio of 1.95 times.

Performance nutrition

Crucially for Glanbia, the company said there was a decent recovery in both sales and profit margins in its flagship performance nutrition business in the third quarter. Like-for-like sales of branded performance nutrition were down 2.3% in the third quarter, which is a big improvement on the 12% decline in sales earlier this year.

The company also said earnings margins in the division are now back in double-digit territory having fallen to just 3.7% in the first half of the year.

Nutritionals

Glanbia’s nutritionals division, which encompasses its US cheese and ingredients businesses, continues to return a strong performance in 2020. Third-quarter sales were up 11% year on year thanks to higher prices, particularly for cheese. US cheese prices hit record highs during summer 2020.

Glanbia has now established itself as the largest cheese company in the US

While the performance nutrition division remains in recovery mode, there can be no doubt what’s driving the very strong cashflows for Glanbia right now. It’s not the flashiest, most high-margin business in the world, but Glanbia’s cheese and ingredients business is extremely reliable.

Remember, Glanbia has now established itself as the largest cheese company in the US, which is no small achievement given the size of the US cheese industry.

Share buyback

The improvement in sales and profit margins in the third quarter, coupled with strong operating cashflow from its nutritionals division, has prompted Glanbia to announce a €50m share buyback programme, which would see it buy up about 2% of its own shares.

Glanbia shares have rallied 6% in the last week and are currently trading around the €8.50 mark

Glanbia said its intention is to buy shares on the open market and cancel them. It will commence the share buyback scheme in November this year. While it’s not the most inventive use of cash, the move will support Glanbia’s share price in the short term at least. Glanbia shares have rallied 6% in the last week and are currently trading around the €8.50 mark.

Outlook

Having withdrawn its earnings guidance earlier in the year, Glanbia did not give an updated forecast for its 2020 earnings. Given that there’s only a matter of weeks left in the 2020 financial year, the failure to provide an updated earnings guidance will be dimly viewed by investors.

At this stage of the year, Glanbia has to have decent visibility of where its business is headed for 2020 and it’s hard to see why it has not provided a full-year earnings guidance for shareholders.