Arla Foods lowers full year outlook due to falling milk prices
- The dairy cooperative now expects to realize a turnover of €13.2 billion to €13.7 billion
- It also expects to make a profit equal to between 2.8 and 3% of sales
- Arla was hit by milk prices falling from record levels in the second half of 2022
Arla Foods has lowered its annual guidance due to a drop in commodity prices and increased demand for supermarket own-brand dairy products.
The dairy cooperative now expects to realize a turnover of €13.2 billion to €13.7 billion, compared to an earlier forecast of up to €14.2 billion.
The company also expects to earn a profit equivalent to between 2.8 and 3 percent of sales, up from a previous top estimate of 3.2 percent.
Outlook: Arla Foods has lowered its annual guidance following a fall in commodity prices
The Denmark-based company said it was impacted by milk prices falling from their all-time highs in the second half of 2022 due to rising production volumes and declining consumer sales.
Average prepaid milk prices rose from 46 cents per kilo last year to 48.2 cents per kilo, but were lower than the 52 cents per kilo recorded for the 2022 financial year.
Amid cost-of-living pressures, the group noted that consumers were buying more private label dairy products and items through discount channels.
Arla’s margins were further hurt by paying a higher average prepaid milk price to farmers, as well as higher ingredient, packaging and energy costs.
As a result, net profit for the first six months of 2023 amounted to €103 million, compared to €382 million for the comparable period last year.
This is despite price increases implemented in the group’s retail and foodservice divisions last year, which boosted total sales by 10.7 percent to €7.1 billion, with a further boost from the Lurpak butter brand.
In Arla’s largest market, the UK, where it has around 2,000 farmers, net sales rose 16.9 per cent to £1.37 billion, while sales of branded products fell.
Peder Tuborgh, CEO of Arla Foods, said: “We expect inflation and its impact on consumer patterns to continue to drive the remainder of 2023, putting pressure on branded volumes in most markets.
“However, we expect that an increase in underlying category growth will help to slowly pick up brand growth again.”
Two months ago, the company warned of further price hikes and a “milk production crisis” if the British government failed to “urgently” fill labor shortages.
A survey of Arla UK farm owners found that more than half found it more difficult to recruit staff compared to 2019, partly due to Brexit ending the free movement of workers between the UK and Britain and the European Union.
Farmers have increased salaries on average by more than a fifth over the past four years to attract workers, but the poll also found that 12 percent of them are considering ending dairy production due to hiring issues.