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. Last Updated: 07/27/2016

Juice Giant Squeezed by Competition

Russia's leading juice and dairy producer, Wimm-Bill-Dann, reported a 40 percent drop in 2003 net income Monday and analysts criticized the company's poor marketing policies, which hurt its juice sales.

Wimm-Bill-Dann said in a statement that net profit under Generally Accepted Accounting Principles fell to $21.2 million from $35.7 million in 2002. Analysts on average expected the company to report a net profit of $19.4 million.

Wimm-Bill-Dann's fourth-quarter net income was $400,000, according to calculations, despite a December warning of a net loss. The company does not provide quarterly results.

But analysts said they were disappointed by Wimm-Bill-Dann's inability to fend off growing competition in the juice sector, where rising household income attracted new companies.

"Everything we have feared has come true. Operation costs are up, but they are not reflected in revenues at all," said Natalya Zagvozdina, a consumer goods analyst at Renaissance Capital. "Their marketing efforts ... failed to allow them to sell more products for higher prices."

Wimm-Bill-Dann said sales rose 13.8 percent to $938.5 million. Selling and distribution expenses increased 28.5 percent to $140.7 million, reaching 15 percent of 2003 sales against 13.3 percent in 2002.

The company said earnings before interest, tax, depreciation and amortization edged up to $85.4 million from $83.3 million.

Wimm-Bill-Dann was slow in launching new juice products which enabled its two main competitors to chew off some of its market share.

According to research from the Russian Union of Juice Producers, Wimm-Bill-Dann's share shrank to 25.5 percent in 2003 from 31.4 percent in 2002. Its two main competitors also have 25.5 percent of the market each.

UFG analyst Alexei Krivoshapko said some of Wimm-Bill-Dann's profit came from noncash items thanks to appreciation of the ruble on the back of high oil prices, Russia's main export.

"It is the Central Bank and the high oil price which helped Wimm-Bill-Dann, not [CEO] Sergei Plastinin or [chairman] David Yakobashvili," he said.

On the positive side, Krivoshapko noted that in 2003 Wimm-Bill-Dann generated $29 million in operating cash-flow after a $7 million loss from operations in 2002.

"I would not rule out a serious improvement in the third and fourth quarter, but the first half of the year will be full of problematic patches," Zagvozdina said.

She expected that changes to Wimm-Bill-Dann's distribution system, belated installation of new equipment and the launch of new products would only bear fruit in the second half of 2004.