What was it I said just before Russian juice and dairy king Wimm-Bill-Dann (NYSE:WBD) reported its Q2 2006 results? Oh, yes: "If in real estate, the guiding principle is 'location, location, location,' then in dairy, it's 'volume, volume, volume.' "
Thanks, then, to Wimm-Bill-Dann for making me look good when it proved my point last week. The company expanded the volume of goods sold, grew its sales at a quick 20% year-over-year clip, and used the resulting advantages of scale to boost its gross margin 350 basis points in fiscal Q2.
Nor was this a "one-shot wonder" of a quarter. Wimm-Bill-Dann's achievements for the first half of the year were similarly wonderful:
- Sales grew 19% in comparison to H1 2005.
- Operating income increased 144%.
- Net income rose 466%.
- Free cash flow more than doubled to $37.5 million.
As of today, Wimm-Bill-Dann has made itself more than twice as profitable, on an operating basis, as it was one year ago. The firm boasts an operating margin of 9.2%, leaping ahead of American dairy concern Dean Foods' (NYSE:DF) 6.4% operating margin and closing the gap on European rival Danone's (NYSE:DA) 14.5%.
As usual, Wimm-Bill-Dann's dairy and baby food segments turned in the best numbers, with year-to-date percentage sales growth in the mid-20s. But new CEO Tony Maher also said he intends to focus on the one area that I highlighted as needing considerable improvement in last week's Foolish Forecast: beverages, where sales growth has stagnated in the low single digits. Although short on specifics, his statement that "We also look forward to a recovery in our beverage business with the addition of a new highly experienced management team" lends some reassurance that the problem has been noticed and is being addressed. Moreover, having engineered Coca-Cola's (NYSE:KO) buyout of juice producer Multon back when he was working for the soft-drink titan, Maher certainly has the experience to get this job done.
As I said last week, I expect this to be the long-term story at Wimm-Bill-Dann. With dairy and baby food showing strong sales growth, despite the firm continuing to pass along price increases in raw materials to consumers, beverages remain this firm's weak link. Over the coming quarters, I expect we will either see a marked improvement, or a sale of the unit to someone who can do a better job with it.
Milk -- it does a body good. For an additional dose of financial calcium, bone up on Wimm-Bill-Dann with:
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Fool contributor Rich Smith does not own shares of any company named above. The Fool's disclosure policy crosses borders.
