CORRECTED-UPDATE 2-Pricing competition to hit Dairy Crest residential milk sales

Thu May 22, 2014 11:55am EDT

(Corrects headline and paragraph 1 to show residential sales and profit will be hit by pricing competition, not higher milk costs; in para 2, removes reference to profit falling; in para 3, corrects to ... more than 40 million ... from ... 40 million ...)

* Shares fall as much as 8 percent

* Full-year adj pretax profit rises 31 pct to 65.3 mln stg

* Revenue up 1 pct at 1.39 bln stg

* Raises final dividend to 15.4p/shr from 15p

May 22 (Reuters) - Britain's Dairy Crest Group Plc said pricing competition from major retailers would have an adverse effect on residential sales of milk and the profit it makes from these sales.

Dairy Crest did not give a profit forecast for its dairies division, which makes up about 70 percent of its total revenue, or give a forecast for the overall company.

Higher milk costs added more than 40 million pounds ($68 million) to raw material costs in the dairy operations in the year ended March 31 at the company, whose brands include Country Life, Clover and flavoured milk drink Frijj.

"The key question is the outlook and the comments have been around a tougher year ... because of the more aggressive price competition from retailers and basically high input prices," analyst Charles Hall of Peel Hunt told Reuters.

Dairy Crest said residential sales fell 10 percent in the year as more people bought milk from shops rather than buying Dairy Crest milk from their local milkman.

The company said revenue from the dairies business declined 1 percent in the year, while its spreads business reported a decline of 9 percent.

Panmure Gordon analysts cut their target price on the stock to 470 pence from 550 pence, citing concerns over weak performances in both the spreads and dairies businesses.

The brokerage lowered its adjusted pretax profit forecast by about 4 million pounds to 67.6 million pounds.

Shares in the company were down 6.5 percent at 430.3 pence at 1358 GMT on the London Stock Exchange. The stock was the top percentage loser on the FTSE-250 Midcap Index.

Dairy Crest reported a 31 percent rise in adjusted full-year pretax profit to 65.3 million pounds, helped by the sale of a property in London.

The company sold its Nine Elms residential and middle-ground milk depot located in London to Battersea Project Phase 5 Residential Co Ltd for 17.6 million pounds in cash, generating a profit of 15 million pounds on the sale.

Revenue rose 1 percent to 1.39 billion pounds.

Analysts on average had expected a pretax profit of 65.6 million pounds on revenue of 1.36 billion pounds, according to Thomson Reuters I/B/E/S.

The producer of Cathedral City cheese raised its final dividend to 15.4 pence per share from 15 pence a year earlier.

($1 = 0.5925 British Pounds) (Reporting by Aastha Agnihotri in Bangalore; Editing by Ted Kerr, Gopakumar Warrier and Maju Samuel)