Premier Foods starts £10M cost-cutting plan

By Matt Atherton

- Last updated on GMT

Premier Foods's annual profit forecast was lowered 10%
Premier Foods's annual profit forecast was lowered 10%

Related tags Premier foods Sales Marketing

Premier Foods has launched a £10M cost-saving plan, after it reported a 10% drop in annual expected profit in its third-quarter trading update.

The manufacturer reported a 1% drop in group sales to £251M in the 13 weeks to December 31. Branded sales fell by 3.8% compared with the same period last year, while sales increased by 11.6% in its own-label ranges.

Premier Foods launched the cost-cutting and efficiency programme today (January 18) as a response to the falling value of sterling. Ingredient costs have also increased, notably for sugar, chocolate, dairy, what and palm oil.

Improving profit

Premier Foods’s third quarter trading update – at a glance

  • Sales down 1%
  • Branded sales down 3.8%
  • Own-label sales up 11.6%
  • Grocery sales down 1.9%
  • Sweet Treats sales up 1%

The cost-saving scheme would support Premier Foods’s goals of improving profit and free cash flow, while also investing in innovation and consumer marketing, the firm said. The scheme was launched one week after the manufacturer revealed it was in talks with retailers to raise prices by about 5%.

Premier Foods ceo Gavin Darby said: “Sales in our third quarter were weaker than expected despite a strong December. We now expect category performance to remain challenging during the fourth quarter and as a result sales will be below previous expectations.

“Additionally, recovery of significant input cost inflation in certain areas is taking longer than originally foreseen. Consequently, we now expect trading profit for ​[the full year] to be approximately 10% below previous expectations.”

Grocery sales were down

Grocery sales were down 1.9%, Premier Foods reported. Branded sales dropped by 3.8% across the quarter, offset by a 13% increase in own-label sales.

International sales reported a ninth consecutive quarter of sales growth. Following strong performances in Mr Kipling and Cadbury cakes sales in Australia, international sales increased 15%.

“Six out of eight of our major brands gained volume and value market share in the quarter although our categories were generally softer due to changes in retailer promotion strategies,” ​Darby said.

What the analysts say about Premier Foods

  • Euromonitor​ spokeswoman: “The group’s value share of packaged food remained stable in 2016. In the categories in which it is present, such as sauces and soup, there was a shake-up over the last five years with more consumers changing their eating habits and preferring to eat healthier products or cook something from scratch at home. However, the company has managed to remain in the top positions mainly due to product expansion and product innovation in its existing brands.”
  • Shore Capital​ analyst Darren Shirley: ​[The] trading update has revealed a further period of disappointing trading which, coupled with input cost-driven margin pressure, has resulted in a profits warning.​ Premier has once again reported weaker-than-expected trading.”

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