COMMENT: Premier update reassuring in troubled times
Premier Foods today (17 January) said its trading was "in line" with market expectations. This albeit subdued update will likely comfort investors, given the growing pressure UK branded food manufacturers are coming under from weak consumer sentiment.
Premier Foods said it saw a "solid" performance in the last three months of the year this morning, when it revealed that fourth-quarter sales were in line with expectations. The group reiterated that it's full-year numbers are on course to meet market expectations, with analysts predicting 2012 EBIT of GBP117-120m.
The sigh of relief was almost palpable from Premier investors and the group's share price edged up by a little over 1% on the news.
The UK food industry has not had the best run of late. Indeed, Premier's update came at the same time as Associated British Foods revealed difficult trading in its grocery business.
The sector has struggled in the face of downbeat consumer sentiment and declining volumes, which are down by about 1-2% on the year.
Consumers are buying less food and they are buying it more cheaply. Pressure on pricing is at a high. Buying decisions are increasingly made on price, while promotional activity remains intense as retailers battle for market share.
The country's supermarkets have also reported that shoppers are increasingly turning to own label products as they look to cut household expenditure. Last week, both Tesco and Sainsbury's highlighted growing own label sales coming at the expense of manufacturer brands.
"Customers are recognising the value that you get from Tesco own brands and it's one of the ways that they can manage the pressures on their household budgets," Tesco CEO Philip Clarke explained.
None of this can be good news for branded food manufacturers.
Premier's brands include the likes of Hovis bread and Oxo stock cubes, which compete in categories where cheaper own label alternatives have placed branded sales under growing pressure.
Nevertheless, it would appear that Premier's business has remained resilient. In its sales update, the firm dispelled any fears of a slowdown, citing "continued growth momentum behind its power brands seen in the first three quarters of the year".
In 2011, Premier established a strategy focusing on driving growth of its eight so-called "power brands" - those that offered greatest growth potential. Those brands include Hovis, Batchelor's, Lloyd Grossman, Bisto, Ambrosia, Mr Kipling, Oxo and Sharwood's.
During the first six months of the fiscal year, Premier said "power brand" sales were up 2%. The company saw Hovis sales weigh on the result, as the bread brand came under intense competition in the category. Grocery power brand sales were up a stronger 4.9% in the half.
Perhaps most tellingly, chief executive Michael Clarke was relatively upbeat on the firm's prospects in the coming year, when trading conditions are unlikely to ease.
"While the market continues to be challenging, I'm encouraged by the progress we have made in 2012. This provides a solid platform to continue our growth momentum in 2013," he said.
This is a far-cry from the state of Premier's business when Clarke took the helm a year and a half ago. Under his stewardship, Premier has addressed its debt issues, divested non-core businesses and increased investment behind a clearly defined set of brands. The group has also shaken up its management structure in a bid to boost profitability.
Although more detail will follow when Premier's full results are released later this month, early signs would seem to suggest that these initiatives are starting to pay off.
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