Mr Kipling, Batchelors and Bisto gravy maker Premier Foods’ (PFD) forecast-beating annual results show its strongest revenue growth for over five years, a weak first quarter followed by ‘excellent progress’ during the remainder of the year.
Shares in the St. Albans-headquartered foods giant rise 2.4% to 38.65p on the news, although this is still some 40% below the 65p third and final takeover offer from US spices giant McCormick & Co that Premier Foods spurned back in 2016.
TASTY FOURTH QUARTER
Results for the year to 31 March are ahead of rather subdued expectations, but boosted by an especially strong fourth quarter (Q4). Premier Foods benefited from colder weather, which stoked demand for its grocery products, the timing of Easter and a shoot-the-lights-out showing in Australia, now its largest market outside the UK.
Total sales for the year grew by 3.6%, the upper end of the company’s 2-4% target range, to £819.2m, with Q4 revenues rising 7%. Adjusted profit before tax of £78.6m is a beat to Shore Capital’s £74.2m estimate and marks year-on-year growth of 5.9%.
‘We are pleased to report revenue growth of +3.6%, our strongest performance for over five years,’ says CEO Gavin Darby, under pressure to revitalise Premier Foods having turned down the McCormick bid.
Darby continues: ‘Three important drivers of this performance were innovation, our International business and our strategic partnerships with Nissin and Mondelez International.
International has been the star performer with sales growing 25%, and are almost double the level of three years ago, while the benefits from our Nissin and Mondelez International partnerships together contributed 55% of our revenue growth.'
One of the year’s undoubted highlights was the performance of the Batchelors brand, now the fastest growing in Premier Foods’ portfolio, consumers snapping up over 13m Batchelors Super Noodles pots in the past year.
Premier Foods, a company with a patchy financial track record including numerous profit warnings, concedes ‘the wider consumer environment remains a challenging one’, yet management also note the ‘different trends seen between food and non-food sections of the UK consumer goods market, with food sector sales demonstrating stronger trends through the year, particularly in the second half.'
Darby points out that ‘while there has been a clearly demonstrable gap between the rate of general inflation and average earnings over the past year, this has now shown recent signs of narrowing.'
DEBT DOWN, STILL NO DIVIDEND
While today’s encouraging results will hearten shareholders, leverage remains a millstone around Premier Foods’ neck. Despite net debt reducing by £26.8m to a better than expected £496.4m, Premier has a net debt-to-EBITDA or leverage ratio of 3.56 times.
The positive news is Premier is now focused on ‘achieving an initial leverage target of below 3 times net debt/EBITDA. The group now expects to reach this milestone by March 2020 through a combination of profit improvement and net debt reduction.'
Shore Capital’s Darren Shirley says ‘we have been cautious in our Premier Foods’ forecasting in recent times, though looking into full year 2019 we fully expect to be upgrading our profit before tax forecast of £74.2m and EPS of 7.2p.’
And yet despite the improved momentum in the business, Shirley says ‘we are not positive enough on the group’s performance and prospects at this stage to do more than reiterate our hold recommendation.'
