Premier Food leaves sour taste with third quarter result

Mild winter weather and a decision to reduce promotional activity on some products led to Premier Foods disappointing investors with a decline in branded sales over Christmas.

Branded sales fell 1.0% in the 13-week third quarter to 2 January, which was an understandable letdown after the company had previously stated hopes of delivering branded growth in the quarter.

With third-quarter grocery sales down 2.7% and non-branded up 6.4%, group sales were up only 0.1% over the quarter.

This meant branded sales, which includes Oxo stock cubes, Bisto gravy and Ambrosia creamed rice, have slipped 0.4% across the first three quarters of the year, with group sales 0.3% ahead of the same period the year before.

Chief executive Gavin Darby said the branded decline was was due to specific reasons and overall sales were solid, particularly against the background of the broader food sector negative top line.

He remained confident and said profit and net debt expectations for the year were unchanged, and reiterated guidance for the next financial year of branded revenue growth of 1-2%.

"While we are encouraged by the results of our innovation programme to date, grocery sales were held back in the quarter due to an unexpectedly mild December and a decision to reduce promotional activity of Ambrosia."

On the upside, international sales continued their strong growth, rising 9.8% in the quarter at constant currencies.

Also the Sweet Treats business performed very well, with sales up 6.5% due to the innovation programme, especially in Cadbury cake.

Other launches in the period included the launch a range of 'artisanal' bread flours under the name of British Bake Off judge Paul Hollywood.

Looking forward, Darby said: "We have a strong innovation programme in place for the fourth quarter and our profit and net debt expectations for the full year remain unchanged."

Investors were less confident, with the shares tumbling 7% in early trade.

Analyst Nicola Mallard at Investec argued the small miss on branded performance due to weather and promotional activity "should not be seen as any indication that the strategy is not delivering".

"Versus our expectations, the group delivered quarterly revenues circa £2.5m lower than anticipated. Against a full-year revenue number of just sub £780m, this is relatively insignificant and has negligible impact on profit numbers, so we should not put too much weight on individual quarters."

Clive Black at Shore Capital said the result was solid, considering the company's long-term disappointment and volatility.

"Premier Foods’ shares have been more robust in recent times, reflecting the lack of disappointment and so greater confidence in financial forecasts from the group, predicated it should be said upon, the firmer balance sheet and operating foundations outlined above," he said.

"As such, whilst we remains highly alive to the still considerable debt ratios and the considerable pension responsibilities, the ongoing de-leveraging with operational improvement leads us to assert that there is a strengthening case for a stock re-rating. "