Premier Foods warns on profits (but at least mince pie sales are up)
Premier Foods has not made an exceedingly good start to 2017 – its shares dived today after it warned on profits.
The figures
The food manufacturer, whose brands range from Bisto to Mr Kipling and 80s stalwart Angel Delight, said sales in its third quarter were down one per cent at £251.4m, despite a strong December.
Branded sales fell 3.8 per cent, although non-branded sales rose 11.6 per cent, pushing group volumes up 3.4 per cent.
Sales in its grocery business fell 1.9 per cent, while sales in its sweet treats arm edged up one per cent – with over 216m mince pies sold in 2016, up 17 per cent on the previous year.
The company said six out of its eight major brands gained volume and market share, while its international business grew 15 per cent, its ninth consecutive quarter of growth.
But that wasn't enough to push up profits, and Premier said it expects full-year trading profit to be 10 per cent lower than it previously estimated.
In response, it's kicking off a cost-cutting programme which should deliver £10m of savings by next year. Shareholders weren't encouraged, though: shares fell 16 per cent to 40.57p in the first minutes of trading.
Why it's interesting
And lo, inflation began to wreak havoc on UK companies.
Earlier this month Morning Wire broke the news that Premier was planning to hike the prices of many of its iconic brands thanks to a double whammy of weaker sterling and higher commodity costs. The company is in talks with Tesco, Sainsbury's and Asda thanks to pressure from the weaker pound after the result of the EU referendum.
Of course, Premier Foods isn't the only supplier having that trouble – lest we forget, Unilever got itself into hot water late last year when it suggested it might be forced to raise the price supermarkets buy its products at by as much as 10 per cent, which resulted in #Marmitegate.
Official figures yesterday showed inflation rose faster than expected in December off the back of (among other things) higher food prices, which suggests consumers are going to see a lot more of this.
The other thing worth noting is that last year Japanese rival Nissin bought a near 20 per cent stake in Premier Foods, and today it said it will start selling its first Soba noodles pot product – which will deliver "authentic noodle texture and flavours" – from next month. Oh, and it's also creating some kind of Batchelors-Pot Noodle tie-up, which will also come to market next month. Yummy…
What Premier Foods said
Chief executive Gavin Darby said:
Sales in our third quarter were weaker than expected despite a strong December. We now expect category performance to remain challenging during the fourth quarter and as a result sales will be below previous expectations. Additionally, recovery of significant input cost inflation in certain areas is taking longer than originally foreseen. Consequently, we now expect trading profit for FY16/17 to be approximately 10 per cent below previous expectations.
In short
Premier Foods may be one of the first companies hit by the weak pound, but it won't be the last.