Global nutrition group Glanbia’s better-than-expected half-year results were due to higher commodity prices.
Sales from the company’s continuing operations – meaning excluding the 40 per cent stake in Glanbia Ireland, which was sold to Glanbia Co-op earlier this year – rose a massive 38 per cent to 2.8 billion in the first six months of 2022 Euro.
However, the profits of commodity processors like Glanbia will increasingly take the spotlight as inflation continues to rise.
Glanbia is the latest in a long line of companies whose bottom lines have been boosted by commodity price inflation.
Earlier this month, oil company BP, run by Kerryman Bernard Looney, was swayed by public opinion when it reported second-quarter operating profit (before interest) of £6.9 billion (€8.1 billion). ) reported, the highest in 14 years.
“Price increases are due to commodity inflation, particularly dairy”
Sharon Graham, leader of Britain’s second largest union, Unite, accused BP of “unhindered profiteering”, while Shadow Chancellor Rachel Reeves called the company’s second-quarter profits “eye-watering” and renewed her call for a windfall tax on oil and gas producers.
Regardless of the rights and wrongs of the situation, the “Big Five” of oil, which in addition to BP also includes ExxonMobil, Shell, Chevron and ConocoPhillips, collectively had nearly $60 billion (€59.5 billion) in profits in the second quarter entered the second quarter. These were earned at a time when oil and gas prices were near record highs.
Siobhán Talbot, CEO of Glanbia, can probably rest easy knowing she will never be dragged across the coals the same way. Nonetheless, the impact of higher commodity prices on Glanbia’s half-year results is clearly visible.
While like-for-like volumes in the branded performance nutrition business rose just 1.9 percent in the first half, prices rose a whopping 13.9 percent. It was a similar story with its nutritional solutions and US cheese business.
Comparable volumes for nutritional solutions were up 1.6 percent but prices jumped 17.9 percent, while US cheese business volumes were up 6.6 percent but prices jumped 28.8 percent.
So is Glanbia price gouging, or is there a less sinister explanation?
Despite their representative organizations being oddly silent on this, Irish dairy farmers have been making out like bandits this summer.
Processors, including Glanbia Ireland, have paid them record prices for milk.
While Glanbia Ireland is yet to announce its July milk price, it paid a notional 35.6 cents per liter in July 2021.
Kerry announced this week it would pay farmers 56 cents a liter and Dairygold 57.5 cents for milk in July 2022 – those prices are based on a content of 3.6 percent butterfat and 3.3 percent protein, a A more realistic content of 4.2 percent butterfat and 3.4 percent protein means a milk price of well over 60 cents.
Glanbia no longer has any significant exposure to the Irish consumer markets following the spin-off of Glanbia Ireland. Glanbia Co-op remains Glanbia’s largest shareholder with a 30.5 percent stake. However, Glanbia is still exposed to dairy commodity prices because its nutrition companies are major consumers of whey, the protein-rich liquid that remains after the butterfats are extracted from milk.
“The price initiatives [increases] comes back to commodity inflation, particularly dairy, says a Glanbia spokesman. “Inflation has been at unprecedented levels in recent months and global dairy markets have hit record highs.”
These higher commodity prices impacted Glanbia’s businesses in a number of ways.
Whey is an important raw material for the performance nutrition business. Although Glanbia locked 90 percent of its performance nutrition costs earlier this year, it still expects its full-year manufacturing costs to rise 23 percent.
Nutritional solutions and US cheese were similarly hurt by higher input prices.
A strong case for the Glanbia defense can be made by pointing to the fact that the EBITDA margin from continuing operations has shrunk to 6.1 percent this year from 7.8 percent in the first half of 2021. “The actual price increases and volume growth did not fully cover the manufacturing cost of the goods sold [price] rising,” says the spokesman.
Following the sale of the remaining stake in Glanbia Ireland, Glanbia now consists essentially of three companies.
The high-margin performance nutrition and nutritional solutions business and a much lower-margin US cheese business.
Markets reacted positively to the better-than-expected earnings release, with the share price rising over 7 percent on the news to €12.48.
https://www.independent.ie/business/irish/glanbia-milks-it-with-rising-profits-but-has-its-own-inflation-challenges-41924124.html Glanbia is milking it with soaring profits but has its own inflationary challenges