Shares in Carr's Milling Industries (CRM) jumped 10% to £11.65 as the market responded positively to forecast-busting first-half figures and a bullish outlook statement. Upgrades accompanied record interim profits from the diversified agriculture, food and engineering combine, one of few quoted companies to benefit from the recent biting cold snap.
As we suggested in January (click here), Carlisle-based Carr's cultivated stronger-than-expected profits for the six months to 2 March. Taxable profits powered 36% higher to £10.1 million on sales 18% ahead at £232 million. Investors were also treated to a 6.9% hike in the dividend to 7.75p, a payout covered comfortably by earnings up 53% to 79.9p per share.
All divisions contributed to the £94 million cap's improved profits haul, with inclement global weather patterns boosting profits within the company's broadly-based agribusiness operations to the tune of £1.1 million. A wet summer and autumn followed by sustained wintry conditions boosted agriculture profits by 21.5% as Carr's enjoyed strong animal feed sales and experienced bumper demand for its feed block products in the UK.
Feed blocks also sold well across the pond, where last year's summer droughts resulted in low quality forage and a harsh winter proved unhelpful for US farmers. Back on home turf, the elongated winter conditions provided a fillip to the firm's expanding fuel distribution and retail operations in Scotland and Northern England.
Another stand-out divisional performer was Carr's higher-margin engineering business, where profits sparked up the best part of 40%. This reflected demand for remote handling equipment and specialist fabrications from the nuclear and petrochemical industries. Carr's even managed to raise profit levels in its low margin food business, where flour milling overcapacity has proved problematic. The company explained that 'cost-effective access to imported wheat', following the poorest UK wheat harvest on record, had offset 'volatility on flour milling.'
Carr's concedes this reliance on imported wheat is set to continue for the time being. On the positive side, the recent closure of competitor Rank Hovis in Glasgow has removed some overcapacity from the Scottish market. As such, Carr's believes it can mop up some business with the help of its new state-of-the-art mill at Kirkcaldy. Currently in construction at a cost of £17 million, the new mill kick-starts production in September and should boost divisional profitability in the next fiscal year.
One metric that may have unnerved investors was Carr's net debt figure, which increased to £19 million from only £2.5 million in September. However, this rise was expected by analysts and reflects the cash-generative company's ongoing capital expenditure drive in both its food and engineering divisions.
In an upbeat outlook statement, chairman Chris Holmes said he expects 'the benefits to the group of the adverse weather will continue in quarter three' and reckons 'the result for the financial year ending 31 August 2013 will be ahead of our previous expectations.'
Investec Securities analyst Nicola Mallard, with a 'buy' rating on Carr's, has raised her price target from £11.25 to £14 and ratcheted up her year-to-August profits estimate from £13.7 million to £15.6 million accordingly. This takes estimated earnings 18% north to 126.3p. For 2014, Mallard moves her pre-tax forecast up from £15 million to £16.5 million.
