Alaska Milk profits fall as higher costs bite

BY RUBY ANNE M. RUBIO, Reporter Uytengsu-led Alaska Milk Corp. saw a 41.85% drop in net income last year to P289 million from P497 million, succumbing to shrinking disposable income and declining consumer confidence. Alaska shares yesterday closed unchanged at P3.60. In a disclosure, Alaska reported a 7.77% increase in net sales to P5.41 billion from P5.02 billion, but cost of sales and operating expenses rose 14.74% to P5.06 billion from P4.41 billion due to higher prices of primary raw and packaging materials aside from higher advertising and promotion expenses. Operating income was cut into half to P345 million from P610 million. "High prices of basic goods and services as well as political anxieties had consumers keeping a tighter rein on expenses, leading to a slowdown in economic growth. This weighed heavily on the domestic milk market, with all categories declining close to double-digit rates year on year, as consumer demand for milk products took a downturn from its 2004 level. Heightened trade marketing support and promotional effort for the Alaska liquid canned milk business boosted sales volume during the fourth quarter, mitigating the drop in sales volume [from January to September]. As a result, full-year sales volume posted single-digit declines versus the same period last year, outperforming the liquid milk category’s contraction. Alaska continued to maintain brand leadership in the liquid milk market, with market share gains on both the evaporated and condensed milk categories," the milk company said. For the quarter, net income fell 49.7% to P83 million from P165 million. Net sales went up by 21.92% to P1.78 billion from P1.46 billion. Operating income spiralled down 46.7% to P113 million from P212 million. Higher cost of skimmed milk powder and tinplates as well as higher fuel and utilities cost pushed production costs higher. In addition heightened trade marketing initiatives and consumer-related promotions pushed operating expenses year on year. With the continued decline in domestic interest rates, interest income earned from placements in 2005 amounted to P70 million, lower than interest income earned in the same period last year of P92 million. The firm’s financial position remains strong with a cash balance of almost P1.9 billion as of end-December. - BusinessWorld