January 12, 2018 / 10:31 AM / 2 years ago

Food ingredients maker Chr Hansen falls as colour sales blench

COPENHAGEN (Reuters) - Chr Hansen (CHRH.CO) reported a weaker-than-expected first-quarter profit on Friday due to weak sales especially in its natural colours unit, sending shares in the Danish food ingredients maker down more than 7 percent.

Chr Hansen’s natural colours unit, which accounts for a fifth of total revenues, has in recent years benefited from large food manufacturers replacing artificial colours amid higher demand for natural products from consumers.

But the business faced pressure in the first quarter and the unit’s operating profit came in a quarter below consensus’ forecast.

This was due to the loss of a big customer in the Middle East in the quarter and weaker sales of coloured yoghurts in its key U.S. market, Chief Executive Cees de Jong told Reuters.

“Those coloured yoghurts have very high sugar content and you can imagine that consumers are moving away from that,” de Jong told Reuters.

Shares in Chr Hansen were down 7.5 percent at 535 Danish crowns (63.92 pounds) after the company reported first-quarter operating profit below forecasts.

Earnings in the first quarter before interest and tax was 64.7 million euros, falling short of the 68.4 million euros expected by analysts polled for Reuters.

The firm lowered its outlook for 2017/2018 revenue growth in its health and nutrition business to below its long-term guidance of 8 to 10 percent, as U.S. sales of probiotics used as dietary supplements moved online where more, cheaper products are available.

The demand for probiotic-based dietary supplements, offered by companies such as Chr Hansen customer Nestle (NESN.S), has increased as part of the so-called “natural food revolution”, a trend driven by demand for food with fewer artificial additives.

“We see the consumers being confused and just going for most bacteria at the lowest price,” said de Jong. “They do not fully understand that it is not just about more bacteria but about the right bacteria”.

“Our customers have been a little bit taken by surprise, they were relying a bit too much on their brand,” he added.

He expected regulators to step in and said the U.S. Food and Drug Administration has already started discussions with the industry.

Chr Hansen’s main business produces enzymes and bacteria for wine, meat and dairy products.

A bright spot in the earnings was sales of bioprotective cultures, bacteria cultures that extend product shelf life and fend off mould on perishables, which jumped 45 percent.

Chr Hansen’s sales of bioprotective cultures were now larger than rival Dupont (DPTP.PA), which was the first to enter this area, de Jong said.

Reporting by Stine Jacobsen; Editing by Jason Neely and Edmund Blair

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