Shares in fresh pork supplier Cranswick (CWK) cheapened 3p to £10.12 this morning, as investors took some profits off the table in spite of a sizzling fourth quarter sales update from the food producer. Nevertheless, analysts have upgraded estimates for the sausage and bacon processor, which continues to outperform rivals amid subdued UK grocery market conditions.

Cranswick chart - April 2013


In a fourth quarter update foreshadowing next month's (20 May) full year results to March, the £492 million cap pleased with news underlying sales skipped 5% higher last year, good going given the downwards pressure being exerted on the disposable incomes of UK consumers. Total sales including last summer's (2 Jul) acquisition (add link) of cooked meats outfit Kingston Foods, warmed up by a creditable 7%.


Impressively, underlying fourth quarter sales grew 13%, helped by the start of new fresh pork contracts with retail bellwether Marks & Spencer (MKS) and Asda, the supermarkets giant owned by US retail titan Wal-Mart Stores (WMT: NYSE). Most of the Hull-headquartered company's other divisions also delivered good volume growth too.


Acceleration in growth towards the end of the year was driven by Cranswick's focus on new product development, robust performances across its broadening product portfolio within retail stores, as well as market share gains. Continued strong growth in exports was also at play, with second half volumes boosted by the award of export licenses for China to the company's two fresh pork factories in the third quarter.


The company also appears to have been a beneficiary of the horsemeat scandal, as many consumers have switched from frozen products and ready meals to fresh meat joints, particularly those with British labels. This has played into the hands of Cranswick, since most of the pigs it uses are reared here in the UK.


City number crunchers were also heartened by news operating margins are likely to be broadly in line with last year's 5.7% figure, a creditable achievement given recent gyrations in UK pig prices. Cranswick, whose range also spans pastry products and sandwiches, has proven its ability to negotiate price increases with hard-pressed customers. This pricing power will be vital in the months ahead, with the pig meat price expected to trend higher throughout the Spring months.


Cash-generative Cranswick invested £30 million in its asset base last year, including the commissioning of a new fresh pork retail packing facility in Hull, in order to drive operational efficiencies, support new product development and boost its cost-competitive position.


Following the update, Panmure Gordon is sticking with its 'hold' rating yet edges up its published price target from £10 to £10.50. For the year to March, the broker maintains its £48 million taxable profits forecast, giving earnings of 78.6p. 'Despite the prospect of rising pig prices we expect Cranswick to be able to manage the situation and should also benefit from the additional fresh pork volumes from Asda and M&S', the broker writes. For March 2014, Panmure has upgraded its profit estimate by £1 million to £51 million and raised its EPS forecast from 79.2p to 80.6p.


Shore Capital has nudged up its March 2013 profit forecast by £500,000 to £48.5 million for earnings of 77.1p and has a 29.8p dividend, covered more than 2.5 times, pencilled in. For next year, the broker has upgraded profits by £300,000 to £51.2 million for earnings of 82.1p and an expected 7.4% hike in the shareholder payout to 32p.

Issue Date: 04 Apr 2013