Associated British Foods said today (23 April) continued improvements at its grocery division during its first half helped to offset ongoing issues weighing on profits from sugar.
The UK group booked a 2% increase in operating profit, which edged up to GBP463m (US$777.7m) in the period to 1 March. Profit before tax was up 6% at GBP434m and basic earnings per share increased 12% to 43.2 pence. Sales, however, were down 2% at GBP6.2bn.
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The food-to-clothing retail company said a strengthening profit performance from its grocery business, which started in the second half of its last financial year, continued. Grocery sales also increased, rising 3% and the company saw a 100 basis point improvement in margin at the unit.
Chairman Charles Sinclair said: “The recovery in grocery profit seen in the second half of last year has continued with a substantial improvement from George Weston Foods in Australia and a higher profit from [US arm] ACH.”
The company also delivered a hefty 26% increase in profit from its clothing retail arm, Primark, and announced plans to launch the chain in the US in 2015.
However, growth was offset by declining profitability at ABF’s sugar unit, which has been hit by declining sugar prices and an “intensification” of competition ahead of the abolition of European sugar quotas in 2017.
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By GlobalDataABF therefore reiterated guidance that its results this year are expected to be “similar” to fiscal 2013.
Sanford Bernstein analyst Andrew Wood said the outlook suggests a slowdown in earnings per share growth in the back half of the year.
“While management might be playing it cautious, this guidance nevertheless implies sharply negative H2 EPS growth. Our expectations for H2 are for some progress in sales (+3%) but with a margin drop (-40bps)…leading to flat EPS. We continue to believe that this operating performance is not enough to justify current valuations,” he wrote in an investor note.
