Alaska Milk income drops 56% due to higher costs

MANILA, Philippines - Uytengsu-owned dairy manufacturer Alaska Milk Corp. said its net earnings fell 56 percent last year as increased costs of raw materials and the continued weakening of the peso offset higher sales.

In a statement, Alaska said net profit amounted to P291 million as against P667 million a year earlier while net sales rose nine percent to P9.97 billion on higher volumes across its core milk product categories. 

Operating income dipped 51 percent to P462 million as sales costs grew at a faster rate due to sharp increases in global prices of key imported raw ingredients and packaging materials.

Cost of sales and operating expenses reached P9.51 billion, up 17 percent, largely driven by higher cost of production inputs, particularly skim milk powder and tinplate.

Heightened advertising and promotional spending to support volume growth for the new and existing brands likewise contributed to the increase in operating expenses.

The company incurred a net interest expense of P57 million as it drew from its credit line from various banks to fund the increase in working capital requirements given its expanded business portfolio as well as higher cost of major raw and packaging materials.

Alaska said retail consumption of liquid canned milk and powdered milk products registered declines year-on-year as consumers scrimped on spending due to rising food and fuel prices. 

Most consumers have downsized their consumption to the smaller and more affordable pack sizes.

The contraction of the evaporated milk market was influenced in part by an unusually short summer period which affected overall demand for cold beverages.

The condensed milk market, on the other hand, weakened at a much slower rate due to the strong off-take of the economy brands.

Alaska reported that its shelf offtake of its powdered filled milk remains brisk owing to improved product availability and distribution levels.

Sustained marketing efforts for the brand resulted in double-digit growth in sales volume as well as market share gains year-on-year.

The UHT business likewise performed strongly in 2008, notably, the UHT ready-to-drink milk line.

Following the re-launch of Alaska Choco, off-take of the brand surged alongside improvements in in-store presence. Selective brand support likewise pushed sales volume of Alaska Yamoo! higher year-on-year.

In addition, the incremental sales volume contributed by newly launched Alaska Yoghurt Drink helped drive volumes higher.