Premier Foods sales under pressure, earnings hit by higher tax expense

Premier Foods sales under pressure, earnings hit by higher tax expense

Premier Foods plc today (15 November) reported declines in first-half underlying revenues and in profits as the UK group saw a fall in like-for-like sales in the second quarter, higher marketing spend and tax expenses weigh on its half-year results.

The Mr Kipling maker reported a net losses of GBP55.6m for the six months to 1 October, compared to a net income of GBP21.7m in the comparable period of last year. The company's tax costs were significantly higher this year as the company lapped a one-time tax gain in the prior year period. Premier also faced an increase in finance costs in the current period.

Increased marketing investment meant Premier's operating profit was lower year-on-year. Operating profit fell to GBP22m compared to GBP23.3m, the company revealed. On an adjusted basis, trading profit dropped to GBP48m compared to GBP50m. 

Premier did report a 2% increase in total sales to GBP348m, including the contribution of the acquired Knighton Foods business.

However, on a like-for-like basis, sales were down 1.8%. Premier attributed the decline to a 4% drop in revenue from its grocery brands, which include gravy business Oxo. 

"Following a good first quarter where we saw a number of our brands in growth, the second quarter was much weaker in our grocery business due to warmer weather, which resulted in lower sales in the first half overall," CEO Gavin Darby explained. "However, our sweet treats and international businesses continued to demonstrate their strong momentum, delivering against our strategic priorities and growing over 4% and 9% respectively." 

Looking to the full year, Premier affirmed its current outlook for sales growth of 1-2%, which is expected to be weighted towards the fourth-quarter. "Profit expectations for the full year are unchanged, with this year's consumer marketing costs now expected to be broadly in line with last year's," the company added. 

Premier stressed it has made progress in tackling issues around its pension costs – an area of the business that is of concern to investors. The company said its combined pension deficit of GBP228.8m is due to fall in "discount rates".  Net present value of pension deficit recovery schedule expected to reduce by circa GBP100m, the company revealed. 

Shares in Premier were up 3.05% at 46.63p at 10:02 GMT today.