Premier Foods Trading Earnings Jump as Cost-Cut Goal Is Reached

Premier Foods Plc (PFD)’s first-half earnings jumped, providing relief to investors after shares of the British maker of Hovis bread dropped about 90 percent in five years.

Underlying trading profit rose 50 percent to 47.4 million pounds ($73 million), the St Albans, England-based company said in a statement today. It benefitted from achieving a full-year target for cost savings of 20 million pounds and from the sixth consecutive quarter of sales growth in its so-called grocery power brands that include Mr. Kipling cakes and OXO stock cubes. Premier Foods shares rose as much as 12 percent.

“This shows that our turnaround strategy is delivering at the bottom line,” Chief Executive Officer Gavin Darby said in the statement. “The second half will see further plans to grow our power brands, in addition to a new 10 million pounds of cost savings that we have now identified.”

The company is reorganizing its milling operations into two parts to focus on its third-party customer base, and will close a mill in Barry by the end of October, cutting about 43 employees. It’s also halving the number of suppliers. Full-year trading profit will be about 146 million pounds, Darby said in a conference call. That’s at the top end of market estimates, according to the statement.

Premier Foods shares were up 7.7 percent at 91.50 pence at 12:52 p.m. in London, paring the drop to 19 percent this year and giving the company a market value of 219 million pounds.

‘Strong Numbers’

Today’s results are “an extremely strong set of numbers,” Martin Deboo, an analyst at Investec Plc, said in a telephone interview.

Underlying trading figures exclude disposals, milling sales and strategic contract withdrawals, according to the company, which had net debt of 890.4 million pounds at the end of June.

Premier Foods will seek to “diversify its capital structure” by the end of 2015, Darby said on the call. Debt has fallen from a peak of 1.77 billion pounds in 2008.

“We think the key issue for Premier remains its balance sheet and pension fund liabilities and here we still believe an equity raise of about 200 million pounds is a rational course of action,” Panmure Gordon analysts including Graham Jones said in a note to investors today. They kept their recommendation to sell the stock and a target price of 65 pence.

To contact the reporter on this story: Morgane Lapeyre in London at mlapeyre@bloomberg.net

To contact the editor responsible for this story: Douglas Lytle at dlytle@bloomberg.net

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