Fresh pork was ‘stand out performer’ in Cranswick results

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Cranswick's fresh pork business was 'the stand out performer', said Panmure Gordon
Cranswick's fresh pork business was 'the stand out performer', said Panmure Gordon
Meat processor Cranwick’s fresh pork business was “the stand out performer” in the firm’s interim results for the six months to September 30, says City analyst Panmure Gordon.

Fresh pork business revenues rose by 26%, reflecting new business wins.

Cranwick’s bacon sales climbed by 18%, benefitting from the trend towards premium bacon, while cooked meats revenues were up by 13% and sausage revenues increased by 4%.

Overall, the firm reported profit before tax at £23.2M – up by 4% on the first half of the year.

Interim adjusted earnings per share rose by 7% to 38.3p, driven by a lower tax charge, said Panmure Gordon analyst Damian McNeela.

‘Close to record levels’

“The UK pork price is expected to remain close to record levels at about 171p/kg at least until Christmas but we expect an improved margin performance in the second half of 2014, as the company recovers costs and continues to deliver operational efficiency improvements,”​ said McNeela.

Strong underlying revenue growth of more than 13% was offset by both margin pressure, as UK and EU pig prices climbed, and the start-up costs of its new pastry factory.

Panmure Gordon retained its forecast for flat adjusted profit before tax at £49M and its ‘hold’ advice on the firm’s stock.

Investec analyst Nicola Mallard agreed that higher UK and EU pig prices and commissioning costs had “dampened”​ Cranswick’s  first half profit. But “margins are being restored, as these costs are being recovered and EU pig prices are retreating”,​ said Mallard.

The impact of pig prices had been partially mitigated through efficiencies, volume gains, discussions with customers and a reduction in EU pig prices, she added.

Year-end debt

Cranwick’s net debt was in line with expectations at £37.2M. The analyst expected year-end debt to close at about £30M.

Investec predicted a full recovery by the start of next financial year and retained its ‘buy’ recommendation on the firm’s stock.

The analyst N+1 Singer noted “slightly weak spots” ​in the firm’s continental products – down by 3%, reflecting the loss of a key customer and – down 5% after product rationalisation.

“Operationally the key commentary is around recovery of high input cost inflation,”​ said analyst Sahill Shan. “It seems success to date has been partial. Efficiency savings, volume growth and constructive discussions with customers have seemingly helped some cost recovery but clearly not to the full extent to recover the margin squeeze.”

Results were “a tad on the disappointing side”​, said Shan.

Cranswick chairman, Martin Davey, described the first half results as quite positive.

“Continued growth in sales, significant investment in the asset base, most notably the commissioning of the new pastry facility, along with the strategic development of the company's pig breeding and rearing activities were all positive features of the six months trading,”​ said Davey. “The increase in sales is especially encouraging.”

The firm’s board predicted full-year performance will be in line with its expectations.

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