As the domestic white milk market contracts, dairy companies improved profitability in the second quarter of this year. Nutrition products such as infant formula and protein, and overseas operations, drove growth in the non-white milk businesses they have cultivated over time. With results also emerging in businesses expanded beyond dairy to bakeries and desserts, analysts say the multi-year push to diversify business portfolios has begun to translate into performance.
According to the Financial Supervisory Service's DART on the 18th, Maeil Dairies(267980)'s second-quarter consolidation revenue was 480 billion won, up 4.8% from a year earlier. Operating profit rose 64.4% to 20.4 billion won. It was not the result of strength in the core white milk business. Maeil Dairies said the white milk institutional sector posted a loss in the first half due to an oversupply of raw milk. There was also the burden of higher prices for packaging and imported raw and subsidiary materials due to the Middle East situation.
Instead, stronger infant formula sales on increased births, expanded sales of non-dairy processed products such as soy milk, and growth in overseas business lifted overall results. Adult nutrition is also taking hold as a new growth pillar. Maeil Dairies has expanded its adult protein and nutrition business centered on "Sellex."
Kim Jeong-uk, an analyst at Meritz Securities, looking ahead to Maeil Dairies' results this year, said, "While the stagnation in white milk continues, growth in high value-added categories such as fermented milk, Sellex, and plant- and grain-based beverages, along with lower processing costs and controlled marketing expenses, will support profit growth outpacing revenue growth," adding, "Expanded exports of infant formula to overseas markets such as China are also expected to offset declining domestic demand for infants and young children."
Namyang Dairy Products(003920) also saw second-quarter consolidation revenue rise 11.2% on-year to 258 billion won, and operating profit increase 38.1% to 1.28 billion won. For the first half cumulatively, it posted revenue of 483.2 billion won and operating profit of 1.8 billion won, up 7.9% and 79.5%, respectively.
Namyang Dairy Products showed notable growth in its overseas business. Second-quarter overseas revenue was 30.1 billion won, up 168.7% from a year earlier. First-half overseas revenue also rose 130% to 46.6 billion won. As a result, the share of overseas business in total revenue more than doubled, from 4.5% in the first half of last year to 9.6% this year.
In Korea, sales of protein products centered on "TakeFit" are increasing, changing the milk-centered revenue mix. In fact, milk's share of Namyang Dairy Products' total revenue fell 5.5 percentage points, from 54.4% in the first half of last year to 48.9% in the first half of this year. By contrast, the share of other product categories, including Choco Emong and TakeFit, rose from 24.3% to 29.2% over the same period.
◇ Business diversification results become visible
Dairy companies expanded beyond milk on the judgment that the domestic white milk market is structurally shrinking. Korea's per-capita white milk consumption fell from 26.6 kilograms in 2021 to 22.9 kilograms last year. It is the result of declining numbers of infants and school-age children due to low birthrates, combined with changes in eating habits.
On top of that, the decline in white milk consumption has led to a raw milk oversupply, increasing the burden on dairy companies. Rather than waiting for white milk sales to recover, dairy companies increasingly need to use existing raw milk to make higher value-added products or secure demand in new markets.
Business areas are expanding beyond dairy and nutrition into bakeries, dining, and desserts. Maeil Dairies is growing its bakery business through its subsidiary Ms. B Bakers. In 2024, Ms. B Bakers acquired the shokupan specialty brand "Mildo," strengthening its B2C business. The company is leveraging branding and distribution capabilities built in existing dairy and food and beverage businesses to target new markets.
Namyang Dairy Products also operates ice cream and coffee and dessert businesses through its subsidiary Baekmidang INC. The subsidiary's first-half revenue was 16 billion won, up 34.8% on-year. While its share of total results is still small, it is meaningful in that the company is expanding revenue sources from milk manufacturing and sales into dining and desserts.
However, some analysts say whether dairy companies' profitability improvement will continue depends on materials and supplies prices and exchange rates. An industry official said, "Prices of raw milk, raw sugar, and fats and oils, and the burden of packaging and logistics costs due to Middle East risks are variables," adding, "The time lag for cost increases to be reflected in product prices can also cause revenue volatility."