After consecutive four-day weekends here in the UK, this column again arrives on a Tuesday, adding to the ‘what-is-the-day-today?’ feeling here at just-food Towers today.
Some of you in the UK may have used the two breaks to take an extended period of holiday – welcome back – and need to catch up on the recent headlines in the industry. This time last week, Lactalis, the French dairy giant, had kicked off the first day back after Easter with its takeover bid for Parmalat (more on which you can read here).
Go deeper with GlobalData
A raft of companies posted financial numbers between Tuesday and Thursday. Most, including Unilever, Premier Foods plc and PepsiCo, reported first-quarter results, while, notably, Associated British Foods booked its half-year figures.
Unilever, Premier and ABF warned the market about the likely continued impact commodity costs would have on margins throughout 2011. Unilever now expects its raw-material bill to rise by 5% this year – up from its previous guidance of 4% – and said it would be stepping up its efforts to cut costs.
Premier, meanwhile, said it had successfully increased prices to offset its rising costs, although the Hovis and Mr Kipling maker admitted inflation remained an “issue” and said it would again look to up prices. Analysts, however, were concerned about Premier’s weak first-quarter sales, which fell 3.1%. The company’s sliding sales came amid a 3.8% drop in volumes and analysts questioned the competitiveness of the UK’s largest food company’s brands.
Over at ABF, the UK firm’s grocery business posted rising sales and profits but the Jordans-to-Ryvita group cut its full-year earnings forecast with competition and cotton prices hitting its discount general merchandise chain Primark.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataHowever, the Q1 numbers were not the only news to come from Premier last week. A day later, chief executive Robert Schofield said he would retire within a year, an announcement that, following a challenging few years for the company, sent its shares rising.
Schofield has spent over nine years in the job, building a business that is home to some of the UK’s most well-known food brands. Nevertheless, his tenure is unlikely to be remembered by shareholders with too much fondness after a series of events – including most notably the 2007 acquisition of RHM – that left investors questioning the company’s direction. On the day Schofield’s departure was announced, one City analyst described Premier as “just an experiment that went wrong”.
As the UK was preparing for Friday’s public holiday, PepsiCo was among the companies in North America announcing its first-quarter results. PepsiCo posted a 20% fall in net income due to higher finance and tax costs. CFO Hugh Johnston, however, also noted that the Walkers maker was experiencing a “high level” of cost inflation. Nevertheless, PepsiCo’s sales grew 27% on the back of organic growth and the acquisition of Russia’s Wimm-Bill-Dann – and the company expects profits to rise 7-8% this year.
However, PepsiCo’s Quaker breakfast cereals business saw sales 7% drop during the quarter, leading to the revival of questions about the division’s future.
Morningstar analyst Philip Gorham suggested Quaker could be sold in the next few years if PepsiCo’s moves to refocus the brand on healthier categories fails to pay off. Johnston, however, said Quaker was a “great brand” and would return to growth – although he did not provide guidance about when sales would regain momentum.
Over the weekend, meanwhile, emerged news of takeover interest in a key player in the US cereals industry – Ralcorp Holdings, the owner of the Post brand. On Sunday, Ralcorp confirmed it had received – and rejected – an unsolicited “proposal” in March from an unnamed party. The company’s statement came two days after CNBC reported ConAgra Foods had wrote to Ralcorp offering to buy the business.
Ralcorp’s board said the proposal was not in the “best interests” of the business, maintained it had a “high level of confidence” in the company’s management team and in the group’s future prospects.
In another twist, Bloomberg reported that private-equity Apollo Global Management is interested in investing in Ralcorp, which, alongside the Post division, sells own-label food across a number of categories in the US.
Shares in Ralcorp and ConAgra rose yesterday after the former’s admission that a proposal had been made (even if it did not reveal the interested party). Barclays Capital suggested the rumours could be a sign that ConAgra wanted to become more of a consolidator in the US food industry – rather than using cash just to invest behind what analysts at the bank called a “more mature brand portfolio”.
Even if a deal with Ralcorp never emerges, ConAgra, then, could be one to watch should the US food sector continue to consolidate.
