Premier's dough deflates

The food manufacturer warned full-year profit would be below expectations after sales dropped, sending shares tumbling.

by Elizabeth Anderson
Last Updated: 06 Nov 2012
Premier Foods, which owns brands including Hovis bread, Bisto gravy and Mr Kipling, said sales fell 3.6% to £477m in the three months to the end of September. The cakes may be exceedingly good but the firm’s financial performance has gone a bit stale.

Full-year profit expectations were originally between £214m and £232m, but Premier no longer expects to meet that target. Considering trading profit for the whole of 2010 was £311m, that’s a significant drop. The markets were also spooked - by mid-morning, Premier’s shares had fallen 37%. Given this is a company that makes staple products, that fall demonstrates the nerves in the market.

Bakery sales were down 7.6% in Q3, and Hovis sales fell 6.2% after fierce competition from other brands. A price spat with a major customer – understood to be Tesco – also didn’t help matters, Premier’s CEO Michael Clarke said. Last year it was reported that Tesco refused to stock some lines of Hovis bread after Premier tried to pass on higher wheat costs by raising the price of loaves of bread by as much as 10p.

The heavily indebted group also said that debt levels by the end of the year would be higher than market expectations, which the company put at £850m. Net debt for the first half of the year stood at £1.14bn.  Clarke, the former Kraft Foods executive who joined Premier in August, said the company was in talks with lenders to refinance the business and identified eight key brands for further investment - Ambrosia, Batchelor's, Bisto, Hovis, Loyd Grossman, Mr Kipling, Oxo and Sharwood's.  All eyes are now on Christmas, which it’s hoped will help sales spring back.

It’s not just food that’s feeling the heat. John Lewis revealed a year-on-year sales drop of 7.9% last week as Britons lapped up the sun.  Sales fell to £57.5m in the week that Britain experienced the hottest October day on record.  That came off the back of Mothercare and Supergroup, which both posted profit warnings last week. Now the Indian summer’s over, will it be followed by a winter of discontent?

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