Shares in high-quality food producer Cranswick (CWK) are coming under heavy selling pressure, marked down 15.6% to £25.02 as the pork-to-poultry supplier reports a 2% sales drop over the festive period.

The Hull-headquartered fresh pork, sausage, bacon and poultry purveyor also warns margins are likely to decline next year due to a challenging retail backdrop and higher poultry factory start-up costs.

FESTIVE SALES LACK SIZZLE

For the seasonally important third quarter to 31 December, Cranswick’s sales softened 2% against a very demanding double-digit prior year growth comparative. Lower sales from pork-related products, reflecting constrained consumer spending and changes to retailer promotional activity, offset tasty growth in poultry and continental products.

Management describes the festive showing as ‘robust’, although investors are nervous over news of a downwards trend in selling prices caused by continued UK pig price deflation.

CAUTIOUS OUTLOOK

The cautious outlook statement is also leaving a sour taste. While Cranswick’s expectations for the current year remain unchanged, the foods maker warns operating margin for the financial year to March 2020 is likely to decline.

This reflects ‘the potentially challenging commercial landscape’, with reduced promotional activity impacting volumes, ‘together with start-up and commissioning costs associated with the new Eye Facility’, Cranswick’s new poultry processing facility in Suffolk, margin headwinds which management actions will only partly offset.

PLENTY OF POSITIVES ON THE MENU

While the margin guidance is disappointing, there remains so much to like about cash-generative Cranswick, which continues to invest in its asset base to support future growth and boasts an unbroken dividend growth track record stretching back to 1990.

Today, Cranswick also announces the inking of a long term supply deal to supply supermarket Morrisons (MRW) with fresh poultry from the Eye facility, and will also soon supply the grocer with cooked poultry products from its factory in Hull.

‘Notwithstanding these short-term challenges, our new Eye and existing added value, poultry facilities and our broadening customer base, provide a solid platform to further develop our poultry business and drive future growth in this attractive and expanding protein category,’ insists management.

FAT TRIMMED FROM FORECASTS

Nevertheless, Shore Capital downgrades its 2019 pre-tax profit forecast by 3% to £92.5m to reflect volume weakness and shaves 15% from its 2020 pre-tax profit estimate, which falls from £99.8m to £85m. ‘We believe we are being cautious in our revised forecasts,’ says the broker, ‘wishing to draw a line in the sand, and note Cranswick’s track record of over achieving when tackling such profit headwinds in the past.’

Shore Capital continues to view Cranswick ‘as a high-class operator with an innovative and expanding product portfolio (focused on premium categories) which is underpinned by a very well invested, industry leading supply chain and manufacturing infrastructure.’

Irish brokerage Davy sees circa 10% downside to its full year 2020 pre-tax profit forecast of £94.7m, with more modest downside of around 3% to its full year 2021 pre-tax profit forecast of £103.2m.

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Issue Date: 07 Feb 2019