Earnings from Associated British Foods‘ grocery division are likely to be “disappointing” in the UK’s current financial year, City analysts warned today (12 July).
The Kingsmill bread producer this morning (12 July) said grocery sales were flat in the 16 weeks ended 23 June. But while sugar sales surged 54%, grocery sales in the period remained level with last year.
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ABF said the grocery market had remained “intensively competitive” for Allied Bakeries in particular and said promotional activity had reduced margins.
Panmure Gordon analyst Graham Jones said ABF is “firmly on track” to deliver strong EPS growth this year, driven by strong growth from its sugar division but warned on the outlook for its grocery earnings, which he forecast would be “disappointing”.
This, he says, partly reflects heavy investment to optimise the cost base and drive efficiencies higher.
Jones said he expects grocery EBITA to fall from GBP244m last year to GBP189m, partly reflecting restructuring costs, but also reflecting “continued difficult trading”, particularly in Australia.
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By GlobalDataInvestec analyst Martin Deboo echoed Jones’ sentiments. Deboo said ABF’s third-quarter update was in line with his expectations for the company for the year but admitted the report contained “plusses and minuses”.
“UK bread remains challenging, while in Australia there are further embarrassing restructuring charges (over and above the GBP30m in H1),” Deboo said.
In its trading update, ABF said the “difficult” retail and competitor environment experienced by George Weston Foods in Australia in the first half continued during the third quarter.
“Revenues and margin were lower than last year as a result. Some further cost for the restructuring of the sales distribution channels and administration was charged during the quarter,” it said.
ABF’s share price was down 0.32% at 1263 pence at 11:47 GMT today.
