Grupo Lala says yogurt will play big role in developing US and Central American markets

24-Jul-2017 - Last updated on 27-Jul-2017 at 07:35 GMT

The dairy company plans to expand its presence in the US yogurt market through the launch of two new flavors of drinkable yogurt.

Grupo Lala reported increased operating income of 5.9% for Q2 2017, driven by its emerging businesses in the US and Canada, with strong performance in Mexico compensating for additional costs associated with the North American market.

Net sales increased 16% year-on-year, rising to $842m in Q2, generating a gross profit of $325.7m compared to the same period last year.

Consolidated cost of goods increased 16.9% compared to the same period of 2016, primarily due to the integration of the US business and its plants running at low capacity.

Operating expenses also grew 18.3%, slightly below the 21.3% in the previous quarter as a result of expenses from the consolidation of the US business.

However, organic growth in Mexico fueled sales growth for the quarter.

“In the Mexican business, we have been able to reach solid margin levels due to solid sales growth and productivity improvements,” the company said.

“I would like to highlight the positive performance of our operation in Mexico in the second quarter of 2017, where sales growth and productivity improvements allowed us to increase total Company EBITDA by 11%,” Grupo Lala CEO, Scot Rank, said.

Rank added the company’s first strategic priority is to protect its base business in Mexico.

By the end of the third quarter, the company will be serving the same number of customers with 11% fewer distribution routes, Rank added.

Central America focus

The company completed integration of its acquired businesses in Central America and expects to meet 2017 margin expectations by the end of the year.

“We recently doubled our installed capacity in Central America,” Rank said. “Central America is a profitable business for us today.”

Lala is currently building four plants in Mexico and Central America – a $2.2bn investment. Most recently, the company spent $30m to build a new dairy processing plant in Guatemala.

Value-added dairy portfolio

“Sales of value-added dairy products continue to grow faster than milk,” Lala CFO, Alberto Arellano, said during the company’s earnings call.

Value-added products like yogurt and its “other dairy products” segment is a focus for the company as the category grew by 27.5% year-over-year.

“Yogurt is an important category for us in Central America and something we will continue to grow moving forward,” Rank said.

Lala holds a 41.5% and 53% market share in the yogurt category in Guatemala and Nicaragua respectively. In addition, the leading milk formula brand in Central America is Nutri Ley, which the company has expanded from one to seven SKUs over the past year.

“Drinkable yogurt is growing anywhere between 12% and 15%,” Rank said.

In the US, Lala will introduce two new flavors of drinkable yogurt, key lime and vanilla, to strengthen its presence in the category.