French food group Fleury Michon has warned its operating profit could fall in 2017 after it failed to pass on rising commodity costs to its retail customers.
“The group expects a difficult 2017 financial year due to a complicated market environment, constant pressure from retailers to lower prices and a very tight commodity environment that will result in a significant impact on underlying operating income, which could lead to a decrease of EUR10m (US$10.6m) compared with 2016,” Fleury Michon said after the market closed on Wednesday (5 April), which sent its shares tumbling yesterday.
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Fleury Michon said it had been seeing “an upward trend” in the cost of the main raw materials it buys but insisted talks with retailers “had not allowed for the necessary price increases”.
The warning came alongside the publication of Fleury Michon’s sales for the first quarter of 2017 – and its profits for 2016.
Fleury Michon, which saw its sales fall in 2016, reported a 3.8% drop in sales for the first quarter of this year to EUR177.7m. The company said its sales generated at French supermarkets were down 5.4% at EUR149.8m.
As well as seeing its sales decline in 2016, Fleury Michon reported lower profits. The company booked operating income of EUR21.6m, down from EUR28.6m in 2015. Its net income reached EUR16.8m, compared to EUR17m a year earlier.
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By GlobalDataFleury Michon said its profits had come under pressure due to “a price war” among French retailers and rising costs.
The company announced its sales figures for 2016 in January. Group-wide sales fell 2.6% to EUR737.8m in 2016 as the company lapped a year of “strong revenue growth” in 2015. Revenue generated from Fleury Michon’s French supermarket business – its largest unit – decreased by 4.4% last year, declining to EUR625.2m. The company said its sales were depressed by “relatively flat demand” coupled with price increases and lower promotional activity.
In its statement on Wednesday, Fleury Michon said it was “working on a plan of savings and improved productivity”.
It added: “The establishment of a shorter, simpler, more reactive organisation will contribute to this. The combination of these elements should enable the group to resume in 2018 on a path of growth in turnover and profitability.”
