The City today (27 April) expressed concerns over Premier Foods plc’s prospects after the UK’s largest food maker warned that profitability was likely to be weighted towards the second half of the year after a drop in first-quarter sales.
In the three months to the end of March, the Hovis maker said that total revenues fell 3.1%.
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Although the company was upbeat on its ability to push through price increases in the face of higher commodity costs, it admitted that the sales slide was the consequence of lower volumes, which were down 3.8%.
According to ShoreCap analyst Clive Black, Premier’s decision to protect margins could mean that the group’s products are not positioned “competitively” in a price sensitive marketplace. This, he suggested, could have significant implications for Premier’s volumes in the remainder of the year.
“Markets may have picked up from the recent nadir but the reality is to our minds that Premier’s stable of products are increasingly uncompetitive as management seeks understandably to protect margins and cash flows,” Black said.
Meanwhile, although Premier suggested that its branded lines gained market share, Panmure Gordon’s Graham Jones, emphasised that the company’s “weak” start to the year saw a branded performance that was patchy at best.
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By GlobalData“While drive brand sales grew by 0.7%, ‘core’ and ‘defend’ brands look very weak with sales down by 11.9% and 13.4% respectively, with sales actually declining ahead of volumes, which we view as worrying in light of the cost environment,” he wrote in a note to investors.
In its trading update, Premier maintained its guidance of “progress” in trading profit and GBP80m (US$132.3m) of non-recurring cashflow generation for the full year. However, the company admitted that profit growth is now likely to be weighted to the back half of the year.
Commenting on the group’s outlook, analysts at Investec Securities wrote: “We continue to struggle to see how Premier is going to make this progress. Despite decent self-help around procurement costs, manufacturing efficiencies and SG&A savings we continue to view Premier’s pricing versus input cost equation as strongly negative for profits.”
