Mexican dairy company Grupo Lala has warned that input and integration costs will continue to put pressure on its pre-tax earnings, despite an overwhelmingly positive first-quarter trading update.
The company reported net sales of MXN 14.8 billion ($789 million), with overall sales growth of 18.3%. Gross profit stood at MXN 5.36 billion ($284.88 million) – up 8.1% on the same period last year – while operating profit was down at MXN 1.25 billion ($66.44 million).
“The highlight of the first quarter of 2017 for Grupo Lala was the acceleration of organic sales, which contributed to a total sales increase of 18% versus the first quarter last year,” said Grupo Lala CEO Scot Rank.
He continued: “Input cost and the incorporation of recently acquired businesses continue to pressure EBITDA margins, although actions initiated since the exchange rate volatility of last year, have contributed to two straight quarters of EBITDA growth.”
During the first quarter of 2017, the consolidated cost of goods increased 25% on the same period last year – the result of a hike in raw material and energy costs in Mexico, and the effect of fixed costs related to the recent expansion of its plants in the US.
In August, the dairy group set up an American division in Dallas as the next step in its expansion north of the border. The move came three months after it acquired the branded dairy business of Laguna Dairy for $250 million.
Its new unit in Dallas, to manufacture value-added dairy products, highlights the changing nature of Grupo Lala’s product mix. Its value-added portfolio – including yogurts, cream, cheese and desserts – added 38.6% growth to record net sales of MXN 4.97 billion ($263.98 billion).
That makes it the fastest-growing of the group’s three core activities – milk, other dairy and beverages – but not the largest.
Milk category growth of 11.4% was fueled by overall good performance and, in particular, by the introduction of LALA 100 in Mexico. Its milk business now turns over more than MXN 9 billion ($478 million) a quarter and has added nearly MXN 1 billion in the last year.
The company attributed a 19.5% drop in profits to costs surrounding the integration of its business in central America and the US.
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