Having analyzed the financial results of the 20 largest dairy companies by turnover, the bank concluded that 2023’s lower milk prices and limited deal activity were key factors for manufacturers’ flat-to-declining numbers.
The top 20 firms’ combined turnover saw a 0.3% gain in US dollar terms but -2.3% decline in euro terms due to euro’s strength versus USD.
Just 8 companies kept the same position in the standings as last year: Lactalis, topping the chart with a turnover of $30.2/€27.9bn; Danone in fourth ($19.7/€18.2bn); Yili in fifth ($17.5/16.2bn); Saputo in 10th ($12.8/€11.9bn); Unilever in 11th ($8.7/€8.1bn), Savencia in 13th ($7.4/€6.9bn), DMK in 18th ($5.9/€5.5bn), and Froneri in 19th ($5.7/€5.3bn).
Meanwhile, Nestlé, Fonterra, Schreiber Foods, Sodiaal, and Grupo Lala increased their positions, while Glanbia and Muller exited the top 20.
Lactalis became the first company to exceed US$30bn in annual dairy-related revenue following several years of growth and acquisitions. For Dairy Farmers of America, lower milk prices meant the US dairy co-op lost the second spot to Nestlé, whose revenue growth – albeit tempered – continued.
Light M&A activity and a shift to core offerings
Besides lower commodity prices, dairy majors’ revenues were impeded by slower M&S activity according to Rabobank – with the exception of Danone’s divestment of its Russian business and the sale of Horizon Organic and Wallaby in the US.
But the bank predicts ‘multiple possible deals are on the horizon’, including some of the sector’s largest ‘in some time’.
These include Unilever’s proposed spin-off of its ice cream division; Fonterra’s shedding of its consumer and integrated businesses, and General Mills’ divestment of North American yogurt business Yoplait.
The deals have the potential to be “the most massive we have seen in a few years” according to RaboResearch’s dairy analysts, and highlight a common theme across the industry: a shift from auxiliary to core businesses.
Unilever is seeking to become ‘a simpler, more focused company’ by putting investment on more profitable categories such as Beauty and Personal Care. Ice cream, it said, had ‘distinct characteristics’ such as seasonality and greater capital intensity.
Dairy co-operative Fonterra said it will prioritize its B2B services and divest from its consumer and integrated businesses. “Due to our co-operative structure, we believe prioritizing our Ingredients and Foodservice channels and releasing capital in our Consumer and associated businesses would generate more value,” said CEO Miles Hurrell.
Fonterra’s Ingredients and Foodservice channels utilize most of the co-op’s milk output. In FY23, Ingredients generated revenue five times higher than that of the consumer division while Foodservice also delivered around AU$600m more in revenue than Consumer.
General Mills values US and Canada yogurt brand Yoplait at more than US$2bn according to Reuters, having acquired a majority stake worth US$1.2bn in 2011 from French dairy co-op Sodiaal and equity firm PAI Partners. Sodiaal, a Rabobank global dairy top 20 member, retaining the remaining 49% stake. Rabobank notes that the yogurt business is non-core to General Mills’ overall portfolio and faces competition from Danone and Chobani in North America.
“Multiple global dairy top 20 companies have similar profiles to Unilever, General Mills and Fonterra; thus, RaboResearch estimates that other companies could announce similar, significant divestments in the coming years as the M&A landscape heats up again,” the analysts said.
In the US, companies have focused on bolstering capacity through plant construction or expansions, with more than US$7bn of investment to be pooled into such activities from 2023 and 2026, the bank’s dairy market analysts said.
Rabobank predicts a less volatile year ahead for dairy majors but warns that factors including interest rates, geopolitical crises and FX developments would keep companies on their toes.