- Cooks up robust branded sales growth
- Leaves full year outlook unchanged
- Food giant withstanding private label boost
Mr Kipling cakes-to-Sharwood’s cooking sauces maker Premier Foods (PFD) shrugged off inflationary pressures and a ‘challenging’ environment for consumers with increasingly stretched budgets to deliver exceedingly robust results for the half ended 1 October 2022.
Despite rising competition from private label products as shoppers struggle with the cost-of-living crisis, the FTSE 250 food producer left full year 2023 guidance unchanged, though the shares cheapened 1.1% to 109.8p on profit-taking after a recent rally.
TASTY RESILIENCE
Premier Foods’ group sales rose 6.2% in the half, stripping out the recent acquisition of Asian ingredients brand The Spice Tailor, with second quarter sales growth strengthening to 6.4%.
Adjusted pre-tax profit grew 11.9% to a slightly better than expected £47 million as the Bisto gravy-to-Angel Delight maker delivered stable gross margins, with price increases and cost savings helping to offset input price pressures.
As households struggle with the cost-of-living squeeze, shoppers are flocking to cheaper private label food products, yet Premier Foods continued to increase its market shares in the main thanks to its strong brands and product innovations.
GROCERY GAINS
During the half, grocery revenues grew 6.7% to £303 million with Batchelors, Sharwood’s, Loyd Grossman and Homepride the star performers, while the smaller sweet treats division grew sales by 5.1% to £115.6 million.
‘We have again made very good financial and strategic progress in the first half of this year, reporting strong group and branded revenue growth in what continues to be a challenging environment,’ said CEO Alex Whitehouse.
‘The current economic climate is undoubtedly challenging for consumers, and our broad range of affordable brands have always played a key role for families when times are tough,’ he continued.
‘With people starting to eat out less, they often find the best restaurant in town is at home, where you can make nutritious and tasty meals more affordably. In this environment, our portfolio of brands continues to display strong momentum and are well placed to deliver further growth.’
OVERSEAS PROGRESS
Premier Foods also reported tasty progress overseas, serving up 11% sales growth generated across Australia, Canada, Europe, Ireland and the USA.
The group’s international push is being spearheaded by Mr Kipling, Sharwood’s and The Spice Tailor, Premier Foods’ first acquisition for over 15 years which brings a big opportunity to build its Indian cooking sauces business.
EXPERT VIEWS
AJ Bell investment director Russ Mould said the results were ‘evidence of the progress the company has made, and continues to make, despite cost-of-living pressures. At one time this was virtually a zombie business thanks to an onerous debt pile.
‘Now, with its balance sheet whipped into shape and a focused portfolio of winning brands, Premier Foods has been brought back to life and is demonstrating genuine pricing power to protect its margins from the impact of rising input costs.
‘People are clearly prepared to pay a bit more when it comes to cupboard fillers like Oxo, Bisto, Mr Kipling, Homepride and Paxo rather than trading down to cheaper unbranded alternatives. Premier Foods continues to follow the blueprint established by larger US food producers of innovating within its brands to create spin-off products.’
Sticking to its year to March 2023 pre-tax profit and earnings per share forecasts showing growth from £121.4 million and 11.2p to £126.8 million and 11.7p respectively, Shore Capital argued Premier Foods’ shares ‘remain fundamentally undervalued’.
The broker insisted Premier Foods has evolved into ‘a high class act with a highly competent management team delivering quarter after quarter of good trading performance, noting the pandemic related elevated base whilst navigating considerable cost headwinds with effectiveness.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) owns shares in AJ Bell.
