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Clover stock falls on earnings announcement
Clover stock falls on earnings announcement

Clover stock falls on earnings announcement

MARKETING NEWS - May 12th 2014, 11:18

Despite announcing an acquisition allowing it to manufacture innovative products, Clover Industries’ share price took a knock last week Thursday as the company said it expected a material fall in full-year earnings. 

The branded consumer goods company said earnings for the year to June were expected to be more than 20% lower than the previous year, sending the share 8.72% lower to R18.94 at the end of trading. The trading statement points to a weak second half since the company reported a 90% jump in headline earnings per share to 77.3c for the first six months to end-December.

But the first half was off a low base, given the prior interim period was affected by one-off marketing investments for new products. Clover attributed the anticipated fall in full-year earnings to "a very constrained trading environment" in which the full recovery of raw milk price hikes and other cost pressures such as packaging and ingredient costs would not be achieved.

Earnings would also be hurt by pressure on volumes due to selling price increases, lower fees earned for services rendered, and rising inflation. Meanwhile, the company withdrew its cautionary to shareholders issued two months ago with the announcement that it would buy DairyBelle’s yoghurt and UHT milk manufacturing, marketing and distribution businesses for R125m and R30m respectively.

Clover has been looking to move into more innovative and high-margin product lines such as yoghurt and custard, though it could only do so when it recently ended its supply and service agreement with Danone. In March, the company announced a 50-50 joint venture with specialist food company Futurelife to launch new product ranges.

Clover CE Johann Vorster said the acquisition of the DairyBelle assets allowed the company "an entry into the highly attractive and profitable yoghurt market".

The company said that the deal would give it market share of about 10% in yoghurt and about 19% in UHT milk. The transactions are subject to various conditions, including approval by competition authorities. This is expected to be complete by the end of July this year.

DairyBelle CEO, Pedro Viudez, said while the disposal of the company’s yoghurt business had been a "sentimental decision", the deal would allow DairyBelle to focus on its core business of cheese and niche butter products.From DFM Publishers (Pty) Ltd 

Read more about: south africa | dairybelle | clover

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