Associated British Foods said today (21 April) it was making “huge” progress in its North American business, despite booking a 7% fall in half-year profits on the back of costs linked to the sale and closure of two US units.
The UK-based Kingsmill-to-Ryvita maker posted operating profit of GBP260m (US$378.3m) for the six months to 28 February. Pre-tax profits were down 33% at GBP178m, while earnings per share tumbled 31% to 17.6p.
Speaking after the release of ABF’s results this morning, chief executive George Weston said that “a huge amount of work and progress” was being made in its North American business, and that work on the segregation was “going well”.
Weston was referring to the company’s joint venture with Archer Daniels Midland last October to create Stratas Foods. As part of the deal, ABF contributed $38m of assets from its oils business, while ADM contributed packaging equipment at four of its facilities in the US.
“The US and Mexican consumer oils businesses faced very difficult conditions due largely to rapidly changing vegetable oil prices impacting on our pricing and forward purchasing decisions,” Weston said.
Despite this, he said that the company still has the resources to make acquisitions if it wanted.
“If the right thing comes up we will have a look. We retain the appetite and capacity to do it,” Weston said.
Graham Jones, analyst at Panmure Gordon & Co, said that given the issues in Chinese sugar and US grocery, both of which should abate in the second half of ABF’s fiscal year, flat profits was a “good performance”.
“The heavy investment programmes in sugar and ingredients are nearing the end now, and the doubling of capacity in Zambia should, coupled with the opening of EU markets to LDC sugar, lead to strong profits growth next year,” Jones said.
Martin Deboo, analyst for UK investment bank Investec said that, where profits were down in the first half in the company’s North American business was in edible oil, and principally Mazola.
“It is a complex issue but essentially they called the corn oil market wrong and locked all futures in corn oil, which locked them into higher costs,” Deboo said. “The expectation is that this will reverse out in the second half which is therefore going to be a big swing factor on profits.”
ABF said the company expects “little change” in adjusted earnings per share for the full year and retained its outlook.
Shares in ABF were up 7.49% at 703p at 09:35 BST this morning.