Premier Foods Sales Drop on Warm Weather and Fewer Discounts

Premier Foods Plc (PFD), the maker of Mr Kipling cakes, said underlying revenue fell 6.1 percent in the first half as warmer weather cut sales of Batchelors soups and the company reduced discounting to boost margins.

Sales excluding disposals declined to 364.4 million pounds ($622 million) from 387.9 million pounds a year earlier, the St. Albans, England-based company said today in a statement. Trading profit on that basis rose 2.1 percent to 48.1 million pounds as Premier moved some marketing spending into the second half.

“In an environment of robust competitor activity, the company chose to protect margins over sales, with some consequential loss of share,” the maker of Loyd Grossman pasta sauces said in the statement. Premier reduced reliance on “deep-cut” unprofitable promotions, it said.

Premier said the trading profit outlook for the year is unchanged and that it will benefit in the second half from more marketing and product introductions. Items planned for the second half include Bisto gravy pastes and Cadbury sponge puddings, as well as a re-launch of Mr. Kipling cakes, including a television advertising campaign.

“We’ve got a disproportionately strong firepower in the second half,” Chief Executive Officer Gavin Darby said today on a conference call. “Marketing innovation is going to be the lifeblood of the future growth.”

Share Performance

Premier shares were unchanged at 46.50 pence at 10:03 a.m. in London, paring their decline this year to about 43 percent. Premier is the worst performer this year among the 38 companies on the FTSE All-Share Consumer Goods Index.

The mixed earnings report points to the larger struggle of Britain’s traditional grocers, which are losing market share to discounters including Aldi and Lidl. Tesco Plc, the U.K.’s biggest supermarket owner, replaced its CEO yesterday after first-half profit trailed its expectations. Premier also suffers from the rise of discounters because the budget outlets stock more private-label products.

Shopping behavior is changing, Darby said on the call, with consumers moving to discounters, convenience stores and online providers to find lower prices. The company is developing differentiated offerings tailored for discount shops, and having success with brands including Paxo breadcrumbs and flavored stuffings.

Signs of Success

That Premier’s earnings report “has been delivered hot on the heels of a fresh Tesco warning, and amidst some of the toughest conditions in U.K. grocery for years” is a sign of success, Martin Deboo and Alex Howson, analysts at Jefferies International, said in a note to investors.

First-half trading profit was 7 percent above the Jefferies analysts’ forecast, and they reiterated a buy recommendation on the shares and a price prediction of 90 pence, implying that the stock will almost double in 12 months.

The company has been selling assets and creating joint ventures, including with the Hovis bread brand, to cut debt that resulted from highly leveraged acquisitions, culminating in the 1.2 billion-pound takeover of RHM Plc in 2007.

“The company’s focus on de-complexity continues to deliver results,” it said today. “Assuming normal weather patterns, we expect an improved second half branded sales performance and our trading profit expectations for the year remain unchanged,” Darby said in the statement.

Premier had an operating loss in the period of 10.1 million pounds, compared with profit of 5.2 million pounds a year earlier.

To contact the reporter on this story: Alexa Liautaud in London at aliautaud@bloomberg.net

To contact the editors responsible for this story: David Risser at drisser@bloomberg.net John Bowker

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