18th Jan 2017 09:31
LONDON (Alliance News) - Premier Foods PLC on Wednesday said it suffered weak sales in the third quarter of its financial year and warned on increased input costs as a result of the weak pound, leading it to trim its trading profit expectations for the full year.
Shares in the company were trading down 15% to 40.50 pence on Wednesday morning following the news, one of the worst performers in the FTSE All-Share.
Premier Foods said the majority of its brands, which include Bisto gravy, Homepride cooking sauces and Mr Kipling cakes, grew their market share in the quarter to the end of December, but overall sales were down 1.0% for the period, to GBP251.4 million. This is despite sales in December rising 4.5%, the company said.
Sales of branded goods led to the decline, falling by 3.8% in the quarter and offsetting strong growth of 12% in non-branded goods and a 3.4% increase in group volume.
By division, the Grocery business saw a 1.9% decline in sales, which Premier Foods blamed on "changing retailer promotional strategies" such as a reduction in multi-buy promotions, which reduced category volumes.
Despite the overall decline, branded sales were strong in December, Premier Foods said, with Bisto, Oxo, Loyd Grossman, Ambrosia and Batchelors all delivering volume and value market share gains during the festive period.
Premier Foods said is expects changes in retailer promotional mechanics to continue to hit sales growth in the first half of 2017, but that it is working with customers to "refine promotional strategies to mutual benefit", for example by introducing new multipack formats which will support category growth.
Meanwhile, the Sweet Treats business performed better, with sales growing by 1.0% in the quarter, boosted by Cadbury cakes for which the group will be launching new products in the fourth quarter.
Over 126 million mince pies were sold in 2016, Premier Foods said, which is a 16% rise year-on-year, but some of the volume manufactured by the group switched from Mr Kipling to non-branded products, resulting in a stronger performance from non-branded sales than branded sales.
"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," said Chief Executive Gavin Darby.
As a result of the overall sales decline, Premier Foods anticipates trading profit for the year to the end of March 2017 will be around 10% lower than its previous expectations, hit not only by the sales weakness but by input cost inflation driven by a weaker pound.
Input cost inflation is most notable in commodities such as sugar, chocolate, dairy, wheat and palm oil, the company said, adding that is is taking a "blended approach" to manage those cost increases by "managing our own efficiencies, adjusting promotional mechanics and formats where appropriate and finally looking at limited price increases where these cannot be avoided".
"We are working collaboratively with customers to agree these changes and are confident that appropriate settlements will be reached, although this is taking longer than originally foreseen," Premier Foods said.
Due to the problems it faces, Premier Foods said it will seek to cut another GBP10.0 million in annual costs in its 2018 financial year, under a three-year cost savings programme targeting operational efficiencies in the supply chain and the streamlining of business units.
The group added the first products from its partnership with Nissin, the Japanese noodle maker, will launch in February. Products include Soba noodles pots and Batchelors Super Noodles pots.
By Sam Unsted; [email protected]; @SamUAtAlliance and Karolina Kaminska; [email protected]; @KarolinaAllNews
Copyright 2017 Alliance News Limited. All Rights Reserved.
Related Shares:
Premier Foods