UK food giant Premier Foods plc said it hopes to see margin improvements as it heads through the remainder of the year after booking an increase in first-quarter sales this morning (25 April).
The Hovis maker saw group sales edge up 1.3% to GBP427m (US$689.6m) in the three months to the end of March, driven by the performance of its ‘power brands’. The eight brands, which include Ambrosia, Bisto, and Mr Kipling, improved by 3.7% during the quarter.
While Premier did not give any margin figures for the quarter in its statement, speaking on the firm’s conference call this morning, CEO Michael Clarke said the company did see a margin improvement in the quarter, which was partly driven by improved product mix.
“Obviously we have put a lot of effort behind the power brands, which is 70% of our branded revenue, and continue to be higher margin products, both for retailers and for ourselves. And I hope we will continue to see margin improvement as we go through the year but as you well know, there is a lot of market activity out there,” he told analysts.
In a note issued before the conference call, Investec analyst Martin Deboo raised “concern” around what might be happening to margins, which won’t be visible until Premier’s first-half results in August.
“We can be confident that Premier will still be seeing a lot of agricultural commodity cost inflation and renewed crude oil inflation in what is a diesel-intensive business given bread logistics,” he said.
Panmure Gordon analyst Graham Jones echoed the same concerns. “Given ABF’s comments on bread margins, we believe Premier’s margins are likely remain under pressure, although they have stated that full-year expectations are unchanged.”
ABF saw its grocery EBITA fall by 31% to GBP75m this week with the unit’s margin dropping by 210bps.
Nonetheless, Clarke remained upbeat about the firm’s bread division, which saw sales increase by 3.1% in the quarter, noting an opportunity to improve cost savings in the business.
“If look at historically what the supply chain team have been able to do on the grocery side of the business, even in years when volumes have been declining, they have been able to deliver supply chain cost efficiency savings, which I think is very impressive.
“We have only just started to unleash them on the bread side of the business and I think we will start to get improved cost savings without compromising service levels and I am feeling very confident we can do a good job in that area on bread,” he told analysts.
Separately, Clarke said the company, which has been working to turn around its business, was “on-track” to achieving the GBP40m of cost savings by 2013.
In October the company issued a profit warning for the full year but announced a turnaround plan in January which focuses on marketing its core brands and accelerated divestment of non-core operations.
“My management team and I are obviously wanting to surprise people and deliver it early, we will come back to you by the end of the year and tell you how much we managed to deliver in 2012 but we are well on track,” he told analysts today.
However, while upbeat on the progress, he added: “While our performance so far has been encouraging we are not being complacent. The consumer environment continues to be very challenging, with pressure on disposable incomes, high levels of promotional activity from branded players and private label and ongoing cost inflation. Our focus for this year will continue to be stabilising the business and investing in our recovery.”
Premier Foods share price increased 1.88% to 16.19 pence at 13:30 BST today.