Associated British Foods’ share price was knocked this morning (24 February) as issues at its sugar unit overshadowed growth elsewhere in the business.
In a pre-close trading update, the UK company said the six months to 1 March will see “substantially” lower sugar sales and profits. The company said it was hit by a “faster than anticipated” drop in European sugar prices ahead of the abolition of sugar quotas in the region.
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In grocery, ABF said the result for the six-month period was “encouraging”. Although currency exchange will mean revenue falls short of last year, margins and profitability are expected to be “much improved”, ABF said.
Allied Bakeries, which manufactures the Kingsmill brand, “made progress” in the competitive UK bread sector. The group said volumes and margins will come in ahead of last year. Profitability has been improved through restructuring initiatives and ABF said it is coming to the end of an investment programme in its bakeries.
According to Sanford Bernstein analyst Andrew Wood, in light of management comments, the research firm’s forecast of a 60 basis-point improvement in margin “seems a bit light”.
ABF has seen another dynamic performance from its Primark value-clothing retail chain, which shrugged off “unseasonably warm weather” and achieved an “excellent” performance over Christmas. ABF said it anticipates a 14% jump in sales at Primark, with a 4% increase in like-for-like revenue.
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By GlobalDataThanks to Primark’s good showing, ABF said it expects first-half operating profit to be “in line” with last year when it booked operating profit of GBP97m (US$147.6m).
Panmure Gordon analyst Graham Jones maintained his fiscal 2014 forecast based on the strength of Primark’s performance. However, Jones expects issues in sugar to persist into fiscal 2015.
“We estimate currency headwinds will take circa 5% off ABF’s earnings in fiscal 2014, and with sugar pricing remaining very weak, the fact that we can maintain our 102.0p forecast is testament to the strength of Primark’s trading, where we upgrade forecasts yet again. That said, we are trimming our 2015 earnings per share forecast by 2.3% from 111.6p to 109.0p, reflecting a full-year of currency and sugar price weakness,” he wrote in an investor note.
Shares in ABF had fallen 2.81% to 2909p at 10:39 GMT this morning.
