More meat-free blues for Premier Foods
The firm, which recently unveiled plans to contract out production of more of its Quorn and Cauldron meat-free lines after failing to resolve "production inefficiencies", said it would spend a further £1m on restructuring its meat-free division in the first half.
Chief executive Robert Schofield (pictured right) attributed the sales dip to tough comparatives (a “heavyweight Quorn campaign during the same period last year”) and a recent reduction in promotional activity on the brands.
There was also disappointing news from Premier’s RF Brookes (ready meals) and Avana (bakery) businesses, which posted a 9.8% drop in first quarter sales – a figure described by Shore Capital analyst Clive Black as “especially worrying”.
However, much of this could be attributed to the exit of low-margin business, said Schofield: “We expect sales to improve from the second quarter as we lap the contract exits in 2009 and following recent contract wins, which will take effect from the start of the second half in 2010.”
Grocery and bakery
There was better news in the grocery division, with sales of ‘drive’ brands up 5% driven by strong performances from Hartley's and Sharwoods. However, sales of ‘core’ and ‘defend’ brand declined by 1.1% and 5% respectively, while own-label grocery sales slumped by 7.3%.
In bakery, sales of Hovis were up 4.7%, but own-label sales dropped by more than a fifth (20.7%), which Schofield blamed on a “continued decline in the retailer brand bread category, bulk flour deflation in the second quarter of 2009 and the impact of exiting low margin contracts in 2009”.
Overall trading conditions remained challenging, with promotional activity across the market continuing at elevated levels, he added.
“We are progressing well on our strategic cost reduction targets of delivering procurement savings and improving manufacturing efficiency."
Thumbs down from the City
Shore Capital’s Clive Black said the results were “especially poor”, while pension costs, restructuring costs and marketing costs meant Premier would struggle to boost its bottom line in the first half: “Herein lies a central problem; Premier can either grow sales at a cost to margin or vice versa, but rarely if ever grow sales and margins at the same time (higher marketing spend is promised for the second half).
"With pension costs, restructuring costs, marketing costs and so forth, Premier Foods will make no progress at the half-year stage.”
He added: “We much prefer to signpost investors to companies that control their own destiny, with revenue growth, strong balance sheets, controlled pension situations and the ability to pay a dividend; Premier Foods is none of the above.”
Panmure Gordon analyst Graham Jones was also unimpressed: “In our view this statement is unlikely to be a catalyst for a more positive view on the stock.”
