Country Life gets patriotic

The spectre of rising costs spooked Dairy Crest investors on Thursday morning. Shares fell more than 4% to 590.5p in morning trading as the cheese and spreads supplier warned net debt for the year would be “somewhat higher” than the £229m it stood at on 31 March 2016.

Dairy Crest has been a victim of milk cost inflation, as well as soaring cream prices, which determines the input costs of the butter business.

The trading statement for the nine months to 31 December revealed volumes in Clover, Frylight and Country Life had grown and Cathedral City cheese improved in the third quarter.

Jefferies’ Martin Deboo questioned whether the high price point of Cathedral City and tough environment was taking a toll. He pointed out volumes had grown against “soft comparatives”. “A combination of declining real income, input cost inflation, higher levels of competition among retailers and the threat of consumers trading down creates downside risk to full-year earnings,” he said.

Charles Hall at Peel Hunt, which has a ‘buy’ rating on the stock, predicted improving growth and profits in the cheese business as normal service is resumed across the major retailers and prices rise to reflect higher milk input prices.

Improved earnings at Carlsberg in 2016 failed to boost shares, which fell 2.5% to DKK618. Full-year organic operating profits grew 5% thanks to its cost-cutting programme feeding through to the bottom line and a 2% jump in revenues to DKK62.6bn (£7.2bn) as prices increased.

Morningstar equity analyst Philip Gorham wasn’t convinced. “Carlsberg is the least profitable of the large-cap multinational brewers, and it must address its high-cost structure to prevent further shelf-space loss,” he said.

HSBC added that the good news was that the management’s turnaround plan was “clearly working” and the outlook of mid-single-digit organic EBIT growth in 2017 “encouraging”. “But here’s the bad news,” global beverages analyst Anthony Bucalo said. “Many of the fundamental challenges of 2016 are likely to spill into 2017.”