Sole remaining British-listed dairy processor Dairy Crest (DCG) sours 3p to 563p after a strong run, as a mixed first quarter update provides a profit-taking opportunity. Despite a strong quarter from the Cathedral City cheese brand, the Clover and Country Life spreads brands put in a sluggish performance in 'a butter and spreads market that continues to decline'.

Click here to read Dairy Crest's update covering the quarter ended 30 June in full. The £779.7 million cap assures it is on course to meet full-year profit targets, though the aggregate quarterly sales performance of its key brands is flat year-on-year.

CEO Mark Allen flags another strong quarter from Cathedral City, which continues to take market share and is now Britain's 16th largest grocery brand according to The Grocer. Allen also highlights a continuing strong performance from the smaller Frylight cooking spray brand. The disappointing news is that Clover and Country Life sales fell in a shrinking butter and spreads market.

Web chart - Dairy Crest - July 15

There is much good news however. Dairy Crest's Davidstow-based project to make demineralised whey powder, a base ingredient for infant formula, and galacto-oligosaccharide (GOS), a pre-biotic added to infant formula to better match human milk composition, is nearing completion. The company expects to begin selling both products in the current financial year to March, thereby accessing the growing, global infant formula market for the first time.

In November, Dairy Crest announced the sale of its loss-making dairies operations - including its liquid and flavoured milk, bulk and potted cream and bulk butter businesses, to Germany's Muller for £80 million. This disposal, which ought to be approved by the Competition & Markets Authority (CMA) on 21 August, has been well-received by the market since it will improve earnings quality and reduce financial risk in one fell swoop.

Once it completes, Dairy Crest will be free to focus on its higher-margin cheese and spreads business, present challenges notwithstanding, and the aforementioned whey-based products project. Longer-term, the food producer will be better placed to invest in its branded portfolio and even consider acquisitions. The rump business could even draw a bid, since the dairies arm has represented something of a poison pill to potential acquirers.

Issue Date: 14 Jul 2015