Analysts are united in their praise of Cranswicks H1 performance, despite a profit slide

Analysts are united in their praise of Cranswick's H1 performance, despite a profit slide

Analysts have commended UK pork supplier Cranswick's first-half performance, especially in light of what one called a "demonstrably difficult" UK marketplace.

Cranswick yesterday (14 November) posted a rise in revenues to GBP393.9m (US$625m), a 6% year-on-year rise.

However, profit before tax was down to GBP18.5m, compared to GBP23.8m in the same period in 2010. Operating profit was GBP19m, down from GBP24.6m a year earlier as the company struggled against higher first-quarter input costs and a comparison to last year's performance

Davey expressed his delight at the growth in turnover, which he laid at the door of growth in sales of pastry products, further increases in sausage, bacon and ham volumes and the achievement of sandwich listings with two major grocery retailers, adding that the board was viewing the remainder of the fiscal year with a degree of "cautious optimism".

He also spoke of changing habits among price-conscious consumers who have historically purchased sandwiches and have now switched to making them at home, causing a sales rise in the cooked meats category. Branded launches have also made a positive contribution, he said, with new Red Lion, Weight Watchers and Jamie Oliver products all gaining listings.

Damian McNeela, a research analyst at Panmure Gordon, reiterated a 'buy' recommendation to the market, even in the face of the fall in pre-tax profits, which he says is down to a time lapse in recovering higher pork costs from retailers.

He highlighted the 14% revenue growth in fresh pork to GBP143m, rising sausage sales as consumers are drawn to its relative value and bacon sales increasing by 30% to GBP24m.

"Cranswick should see improved operating margins during the second half, benefiting from strong consumer demand, a stable pork price and recently secured price increases from retailers," McNeela said.

"The UK pork price has started to rise modestly over the past two weeks to 146.7 per kilogramme. It still below June's peak of 153p per kg, but we expect the pork price to remain broadly stable over the coming months.

"The low relative cost of pork to other meat proteins should underpin demand for Cranswick's products and we expect operating profit margins to improve through the second half, benefiting from the recent decline in the pork price and successful price negotiations."

Darren Shirley of Shore Capital Stockbrokers concurred, calling Cranswick's report an "encouraging update from a fundamentally strong business", despite a "tough period" for the UK consumer market.

"We have to say that the detail of the report from Cranswick is fundamentally positive to our minds, reflecting what we believe to be an industry-leading management team operating well-invested and industry-leading assets," he said.

Shirley argued that Cranswick's management could be disappointed with the "financial out-turn" so far this year but he said he believes the company's underlying strength, combined with a stabilising pork market, gives it a position of strength from which to build.

He said: "Firstly, the company delivered excellent sales growth, indeed we contend just about industry-leading sales growth. Amazingly, to our minds, Cranswick increased volumes by 5% over the period, a great achievement with Q1 volumes up by 3% and Q2 by 7%.

"The strength of this performance in a UK food market that has experienced negative volumes for much of the year underscores the increased attraction of pork as a protein and its strong value credentials, especially compared to beef and lamb."

Shirley also underlined the rise in export sales, aided by the US market following the Hull fresh pork facility receiving US Department of Agriculture accreditation in April 2011, as well as its exploration of opportunities in Australasia.

For Cranswick's full financial year, Shore Capital forecasts revenues from Cranswick of GBP787m and an EBIT of GBP42m.

Shirley added: "After a clearly challenging period, we are pleased to be upgrading our estimates for Cranswick, a company that we see as having a very bright long-term outlook."