Wimm-Bill-Dann (WBD), Russia's top dairy producer, is confident gross margins will improve in the second quarter as raw milk prices, its key cost element, have started to abate, its chief executive Tony Maher said.

 

WBaker of Chudo (Wonder) yogurts and Domik v Derevne (Small House in a Village) milk, was last year hit by increased input costs due to a disruption in raw milk supply, but the trend in pricing now seems to have reversed.

 

Gross margin fell to 28% in the first three months of this year from 30.1% in the previous quarter as raw milk shortage continued to persist into the beginning of 2010, said WBD, in which France's Danone has an 18% stake.

 

In the dairy segment alone, which accounts for 70% of WBD's sales, the gross margin fell to 21.1% from 29.1% a year ago as the company paid 34% more for raw milk than last year.

 

The first-quarter margin was down from 32.5% in the first quarter of 2009.

 

WBD, which is also Russia's second-largest juice maker, said first-quarter total sales rose 19% to US$615.3 million, above expectations, driven by the favourable currency exchange rate but also by sales volume growth across all segments.

 

The company said it gained market share across all business segments, including baby food, and saw some improvement in consumer demand.

 

Russian consumer demand is slowly starting to pick up after being hammered by job and salary cuts in 2009, when the economy suffered its deepest contraction in 15 years.

 

WBD also reported a forecast-beating 167% jump in first-quarter earnings to US$33.7 million, helped by a US$5.3-million foreign exchange gain.

 

Earnings before interest, taxation, depreciation and amortisation (EBITDA) edged up 0.5% to US$73.5 million for a margin of 11.9%, slightly above expectations.