Swiss Cheesemaker Emmi Feels Brexit Pain as Weak Pound Hurts

(Bloomberg) -- Swiss cheesemaker Emmi AG became the latest victim of Brexit, lowering its sales forecast as the pound’s weakness makes European-produced goods less competitive in the U.K.

The drop in sterling is cutting into revenue of the Onken yogurts that Emmi produces in Germany and A-27 desserts it makes in Italy, the company said Wednesday, adding that demand in Spain, Italy and France is also weak. The stock plunged as much as 12 percent.

“The issue is the U.K. market, where it has raised prices to offset currency weakness but local players haven’t needed to do so,” wrote Jon Cox, an analyst at Kepler Cheuvreux.

Sterling’s weakness is a problem for European food producers, causing them to either charge British customers more or take a hit to revenue and profitability. The increased cost of imports pushed U.K. food price inflation to a three-year high in July.

Emmi shares fell as much as 88.50 francs to 638.50 francs in Zurich. The warning has brought the stock down to earth because it ends the dairy company’s streak of earnings beating analysts’ estimates since 2015, according to Patrik Schwendimann, an analyst at Zuercher Kantonalbank, who downgraded the stock to underperform.

Group revenue in 2017 will drop as much as 1 percent versus a previous forecast of 1 percent to 2 percent growth, the company said. Within that, European sales will decline 1 percent to 3 percent, below a prior prediction for growth of as much as 2 percent.

Highlights of the results include:

• First-half Ebit of 90.4 million francs missed analysts’ estimate for 94.5 million francs
• Sales declined 1.3 percent on an organic basis in first six months
• Emmi maintained forecast for full-year Ebit of 195 million francs to 205 million francs
• Company sees sales in Switzerland and Americas toward lower end of targets
  • Swiss forecast is for -2% to 0%
  • Americas forecast is +3% to +5%

To contact the reporter on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net.

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Paul Jarvis