Associated British Foods said today (22 February) it expects a dip in first-half sales from its grocery business but said it seen “progress” on margins.
The Kingsmill-to-Patak’s owner said its revenue for the period to 27 February is expected to be “slightly lower” year-on-year but noted its margin will “continue to show progress”.
The comments came on the basis of actual exchange rates. On a constant-currency basis, ABF said revenue and profit from grocery are “expected to be close to last year”.
In its pre-close trading update, ABF stressed the UK bread market remains “intensely competitive” with average prices “at their lowest levels for eight years”, placing pressure on margins and sales. ABF was nevertheless able to grow the market share of flaghsip UK bread brand Kingsmill’s in the period with a “substantial” increase in sales volumes.
ABF said its Dorset Cereals business “continued to perform very well” and has now been launched in Australia. ABF added Jordans and Ryvita both made “further progress” internationally, growing particularly well in Australia, Canada and France.
The company said operating profit in North America was “maintained”, with Stratas Foods achieved “strong volume growth” in foodservice and retail oils. It did not comment on pricing trends and whether higher volumes would be translated into higher value sales. Lower Mazola volumes were offset by a reduction in overheads, the group added.
Trading at the group’s Australian business, George Weston Foods, was also “much improved”. ABF said revenues were ahead of last year across all businesses and flagged a “particularly strong” top line performance from the Don KRC meat business. Efforts to improve profitability at George Weston are also bearing fruit. ABF revealed factory improvements and lower procurement costs drove improved profitability in the half.
ABF also said the negative impact of currency exchange is expected to be more moderate than initial forecasts thanks to the weakening of the pound sterling against the euro.
The company cut its estimate of how deeply currency exchange will weigh on full-year profits. “The weakening of sterling in recent weeks, particularly against the euro, will ease the effect of currency translation on this year’s results assuming current rates prevail, reducing our previous estimate of GBP25m (US35.4m) to GBP10m,” ABF noted.
“We now expect only a marginal decline in adjusted earnings per share for the group for the full year,” ABF added. The company had previously predicted a “modest” decline.
Sanford Bernstein analyst Andew Wood said that was “good news” for the Kingsmill maker. “For FY 2016, management’s underlying trading outlook for the group is unchanged. However, FX headwinds have eased, particularly translational FX headwinds, such that it now only expects a marginal decline in EPS for the FY,” he wrote in a note to investors.
Wood said he expects a 3% drop in grocery sales in the half alongside a 20 basis point margin expansion.
Looking at the first-half results, which will be reported in full on 19 April, ABF said it expects “some progress” in adjusted operating profit, although adjusted earnings per share are expected to be “slightly lower”.