Carr’s Group, the manufacturer of animal feed products in the UK and USA and a large chain of farm stores in the UK, says agriculture is recovering in both markets. The rise in milk and dairy product prices will support the group this year and next.
“The recovery in UK Agriculture continues with all aspects of the business performing well,” Carr’s notes in a trading update ahead of its year end results in November. “Feed volumes and like for like retail sales are running ahead of the prior year, while machinery revenues are significantly ahead of the prior year.”
The group is a major manufacturer of feedblock products for extensive cattle and sheep systems in both the UK and USA, with recent investment to expand its North American capacity. “Feed block sales in the UK remain in line with expectations having delivered volume growth during the main selling season. The USA feed block business has had a disappointing year following significantly lower cattle prices impacting sales volumes. The recovery of the USA market continues as anticipated and trading remains in line with our expectations.”
Carr’s feed volumes increasing
The Group has announced its acquisition of a regional feed distributor in the UK “in line with our stated strategy of strengthening our presence in our current geographies and leading in dairy nutrition”. The deal “adds incremental feed volume and converts some existing merchant business into direct sales”. Earlier this year the Group bought a farm retail business in Southern Scotland and announced its intention to construct a feed blending plant on the southern side of its UK trading area. In September last year it divested its flour milling interests in an £36 million deal. It retains its Engineering division that specialises in nuclear power systems – its Cumbria base is close to the UK’s largest nuclear installation at Sellafield.
“The recovery in UK Agriculture is expected to steadily continue and there are early positive indications of a revival in the USA feed block market on the back of a gradual recovery in cattle prices,” comments Group chief executive Tim Davies. “While we remain encouraged by the prospects in the nuclear sector, the Board’s expectations for the Engineering business’ performance for the full year remain unchanged.
“It is pleasing to see UK agriculture continuing to improve, buoyed by the improvement in farmgate milk prices and, with green shoots of recovery in the USA market, we are confident of the medium term prospects within our Agriculture division.
“We will continue to focus on growth, both through the organic development of our businesses and through selective acquisitions and the Board expects to report results for the full year in line with its expectations.”
US cattle prices up 20%
Broker VSA Capital Research points to the Group’s earlier warning that full year profitability could fall by as much as 17.7% to £11.6 million following delay to an Engineering contract. This is now resolved and an increased order pipeline “provides confidence that the engineering division may move to recovery in full year 2018”.
In Agriculture, VSA states that US cattle prices have risen by 20% since the start of the Group’s financial year, with a new feedblock plant in Tennessee due to open in October. UK feed volumes grew by 3.2% year on year in the first nine months, following four years of volume decline.
Milk prices to rise in late 2017
“Given the extensive media coverage concerning the increasing price of some dairy products and a forecasted milk shortage, we would expect the average milk price to increase in the last few months of FY 2017, having decreased slightly to 26.78ppl in May (last available data). Having been higher than 27ppl earlier in the year, this level should again be surpassed in the coming months, notes VSA.
“Both of these factors should continue to support CARR’s UK agriculture business for the rest of the year and into FY 2018.”
Carr’s share price is up by 3% or £4.15 to stand at £142.09.
(Source – http://www.agrimoney.com/news/carrs-notes-recovery-in-both-its-us-and-uk-farm-markets–10890.html)