Rising cream prices are putting pressure on margins in the butter business

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Dairy Crest (DCG) has recorded “good” growth for its four main brands in the cheese, spreads and oil categories during the first quarter but soaring butter prices are putting pressure on margins.

Combined sales volumes of Cathedral City, Clover, Frylight and Country Life were 7% ahead of the same period last year.

Cathedral City, Clover and Frylight all grew “strongly”, with Cathedral City volumes up 15%, the business said in the trading update for three months ended 30 June 2017.

Cream prices, which determine input costs for the butter business, have increased substantially during the first quarter, Dairy Crest added ahead of today’s AGM.

The rise is set to squeeze margins in the butter business during the year, but a reduction in promotional activity on Country Life is expected to offset some of the pressure despite a likely fall in volumes.

CEO Mark Allen said: “The year has started well and our branded business has delivered good growth in the first quarter. The functional ingredients business continues to progress well and new customers are being signed up. We still expect that the profit contribution from this business will be second half weighted.

“Dairy Crest is well positioned for long-term sustainable profit growth. Despite the pressure on butter input costs, the strong performance of our cheese business means that our expectations for the year remain unchanged.”

Despite the pressure on margins, share in Dairy Crest have risen 0.3% to 558.7p this morning as investors were cheered by the branded growth at the business.

Morning update

Procter & Gamble (PG) has hit back at the activist investor agitating for a seat on the board of the consumer goods giant and said its directors are already “best-in-class”.

Veteran activist investor Nelson Peltz, whose Trian Fund Management holds a $3bn stake in P&G, yesterday launched a campaign to secure a board seat at P&G. In a proxy statement to P&G shareholders on Monday morning, Trian argued that Peltz’s “significant expertise and long track record of working successfully with management teams …. will be invaluable to the company as it works to overcome its challenges”. The investor, which only owns 1.5% of the multinational, criticised P&G for years of weak organic sales growth, which it attributed to “an overly complex organizational structure and a slow moving and insular culture”.

P&G last night released its response to the move in which it said over the past two years the group had accomplished the “most significant portfolio transformation” in its history, having divested, discontinued or consolidated more than 100 brands and simplified its product portfolio from 16 to 10 categories.

“Today, P&G is a leaner, more agile, more accountable and more efficient organization with leadership positions in 10 large, structurally attractive categories,” the group added.

P&G pointed out it had been aggressively reducing costs since 2012, when it launched a $10bn efficiency programme. However, despite this the group has struggled to improve sales growth at the pace it has promised, leading to Peltz wanting to step in to get the top line moving again.

“While the board is always willing to consider new ideas that may help drive profitable growth and enhance shareholder value, the board notes that Trian has not provided any new or actionable ideas to drive additional value for P&G shareholders beyond the continued successful execution of the strategic plan that is in place,” P&G said.

“The board is confident that the changes being made are producing results, and expresses complete support for the company’s strategy, plans, and management.”

Grocery tech firm Eagle Eye Solutions (EYE) has increased group full-year revenues by 71% to £11.1m but still expects losses to remain at the same level as in 2016. The business said in the pre-close trading update for the 12 months to 30 June 2017 that the rise in sales had been by winning new customers, increasing transactions from existing customers and deepening customer relationships.

In May 2017, Eagle Eye signed a three-year contract with John Lewis for the deployment of its Air platform to help the department chain improve digital customer marketing. And since the year end, the company announced the renewal of its contract with Toshiba Global Commerce Solutions for Asda.

Redemption volumes, which are a key measure of usage of the Air platform, are expected to have grown by 58% year-on-year to 60.4 million. Volume growth was primarily driven by the full year effect of its coupon counting service for Asda going fully live in February 2016. In addition, volumes were boosted by increased volumes from existing food and beverage clients and initial transactions for Sainsbury’s during the fourth quarter. During the period, Asda acted as a nationwide redemption channel to run a campaign with Coke Zero Sugar, generating a redemption rate of over 10%. Eagle Eye has also run several digital campaigns through the food and beverage network with other drinks brands, including Heineken, Desperados and Bulmers.

However, as a result of planned investment, group-adjusted EBITDA loss for the year is expected to be £1.8m, which is the same as the loss in 2016.

CEO Tim Mason said: “The group has continued to trade well, whilst accelerating its growth. This reflects a period of strong operational progress where we have won new customers, increased transactions through the platform and continued to deepen our tier 1 customer relationships. Looking forward, following the successful placing in May 2017, the group is in a strong position to capitalise on the business momentum and market opportunity.

“We look forward to providing a detailed update on the full year’s trading and strategy when we announce our full-year results in September.”

Shares in Eagle Eye have slumped 2.1% to 252p so far this morning.

Yesterday in the City

Conviviality (CVR) shareholders enjoyed a profitable session yesterday as shares jumped almost 5% to 332.8p as the drinks group revealed profits had more than doubled thanks to its spate of acquisitions in the past two years. The Bargain Booze, Matthew Clark and Bibendum owner also guided that were millions of pounds more synergies yet to come in the next two financial years as its acquisitions were fully intergrated.

Finsbury Food Group (FIF) had a disappointing day as the stock slid 1.1% to 114.7p on the back of difficult trading in the UK. However, the bakery firm said in the full-year trading update that its overseas business mitigated the declines in its domestic market.

Unilever (ULVR) and Reckitt Benckiser (RB) both finished 0.3% higher at 4,275p and 7,765p respectively.

Stock Spirits Group (STCK) bounced back from losses in the afternoon trading to end the day up 0.6% to 166p after it revealed it had agreed to buy a 25% stake in the Irish whiskey division of Quintessential Brands Group.

The FTSE 100 was boosted as the mining firms got a lift from strong Chinese GDP data and the pound edging down against the dollar, as well as the increase at ITV following the broadcaster revealing it had appointed EasyJet boss Carolyn McCall as its new chief executive. The blue-chip index rose 0.4% to 7,404.13 points.

Elsewhere, Ocado (OCDO) had a strong day as shares jumped 4.3% to 292.2p, with Sainsbury’s (SBRY), Marks & Spencer (MKS), Morrisons (MRW) and Tesco (TSCO) all in the black, up 0.9% to 248p, 0.8% to 327.7p, 0.7% to 247.6p and 0.6% to 174.5p.

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