Premier Foods is confident it will meet its financial expectations for 2007 despite higher costs hitting its bakery business and lower sales from spreads, desserts and beverages.

In a trading statement for the first six months of the year, Premier said today (9 July) it had seen strong trading in May and June offsetting the effects of the hot April weather.

The company added that it had arrested the 4% decline in sales at Campbell's seen at the time of the acquisition and had moved the business into growth. Premier also reported that post-acquisition sales at RHM had been in line with expectations. However, the company's bakery division had been impacted by higher wheat prices and competitor activity.

"The first half of 2007 will be seen as a step-change for Premier Foods. We completed the integration of Campbell's, a business one third of our size, in April, just eight months after the acquisition and we have already made significant strides on the integration of RHM," said CEO Robert Schofield.

Schofield confirmed the total annual synergies from both of these acquisitions at GBP113m (US$227.7m) and said the company remained on track to deliver the combined GBP17m of synergies targeted for 2007. "Through this, underlying business performance has remained steady and while cost pressures, particularly wheat, are an issue, we expect to see branded growth across our business in the second half of the year and we remain confident that performance for the full year will meet our expectations for the group as a whole," Schofield said.

The company also announced that as part of an ongoing review of its activities, it has decided to dispose of the RHM frozen foods business which principally produces own-label products in the frozen pies, ready meals and desserts categories.

On a sector-by-sector basis, Premier said that sales from its convenience foods, pickles, sauces and meat-free activities are anticipated to be significantly ahead of the same period in 2006 due to the acquisition of Campbell's.

However, sales from spreads, desserts and beverages are expected to be lower than the GBP141m registered in the first half of last year, primarily due to the end of the Cadbury chocolate beverages licence in May 2006 and the exit from a number of low-margin, own-label spreads contracts.

Sales and trading profit at its bakery division are anticipated to be lower than the comparable period in 2006 due to competitor promotional activity being only partly offset by price increases. However, cake sales are expected to be ahead of the comparable period last year, with a particularly strong performance from the Mr Kipling brand.