Premier Drops After Saying Annual Profit to Miss Estimates

Premier Foods Says Full-Year Profit to Be Below Estimates
Loaves of Hovis bread, manufactured by Premier Foods. Photographer: Chris Ratcliffe/Bloomberg

Premier Foods Plc, the owner of the Hovis bread and Bisto gravy brands, plunged the most since first selling shares, after saying full-year profit and debt levels will miss analysts’ estimates.

Premier fell 42 percent, the most since July 2004, to close at 5.8 pence at 4:30 p.m. in London. Third-quarter results were “significantly below” management forecasts, with sales falling 3.6 percent to 477 million pounds ($740 million) the St. Albans, England-based company said in a statement today. Premier is in talks with lenders about resetting covenants and refinancing the business, Chief Executive Officer Michael Clarke said on a conference call today.

Premier is focusing on eight “power brands” -- Hovis, Batchelor’s, Mr. Kipling, Sharwood’s, Loyd Grossman, Bisto, Ambrosia and Oxo -- that contribute two thirds of sales, Clarke said. While market trends improved, the company underperformed against competitors in the third quarter, the CEO, who took the post in August, said. Hovis sales dropped 6.2 percent in the period, with volumes declining 13.5 percent.

“Clearly it is a business with significant challenges,” Clarke said on the call. “We plan to dispose of businesses where we add little or no value, and have little strategic fit.’”

Trading profit had been seen in a range of 214 million pounds to 232 million pounds for the year, Chief Financial Officer Jim Smart said on the call. The company wouldn’t make the range, he said, with the extent of the shortfall determined by how well it did in the run-up to Christmas.

‘Profit Warning’

Premier’s “unscheduled” third-quarter interim statement “amounts to a significant profit warning,” Martin Deboo, a London-based analyst at Investec Securities, said in an e-mailed note to clients, putting its “hold” recommendation under review. “Now the question is whether this company can survive,” he said.

Premier Foods said in February it will sell its canned food business to Mitsubishi Corp.’s Princes unit for 182 million pounds ($282 million). Clarke declined to comment today on any other disposals the company was considering.

Refinancing debt beyond its current maturity of 2013 is an immediate priority, Clarke said. Asked if Premier will breach its existing bank covenants, he said he was “pretty optimistic” about discussions.

Grocery sales were down 5 percent, with branded sales losing 6 percent. “The business is still suffering the lost momentum following first-half pricing discussions and following customer dispute,” Smart said. “We have increased promotional spending as planned, but the uplift hasn’t reached anticipated levels.”

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