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AB Foods Revenue Advances on Primark, Rise in Sugar Prices

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July 12 (Bloomberg) -- Associated British Foods Plc, the U.K. sugar producer that owns Primark clothing stores, said revenue gained 13 percent in its fiscal third quarter on higher retail sales and rising sugar prices in Europe.

Sugar sales surged 54 percent and Primark revenue rose 13 percent in the 16 weeks to June 23, the London-based maker of Twinings tea said today in a statement. The company also said it should meet its earlier projection of “substantial growth” in full-year profit.

Sales at the sugar division, the company’s second-biggest contributor to profit, were “substantially ahead,” boosted by higher prices in Europe. Primark’s “strong” revenue was hurt by weak U.K. and Ireland sales in April because of the cold and wet weather, causing “more variability than usual” in its business, the company said. Its newest store opened yesterday in Berlin and had the highest first-day sales in the chain’s history, as shoppers continue to seek out its budget fashions.

“April was a poor month for retailing in general, but we were nowhere near as bad as some other retailers and June was good for us,” Finance Director John Bason said in an interview.

AB Foods rose 1 percent to 1,279 pence at 4:05 p.m. in London, pushing the stock’s gain this year to 16 percent.

Growth Outlook

Sales in Primark stores open at least a year rose about 2 percent in the quarter, unchanged from the first six months of the year, and its profit margins are expanding because of falling cotton prices, Graham Jones, an analyst at Panmure Gordon, said in a note to clients today. He cut his recommendation on the stock to hold from buy after the shares performed “strongly” in the past 12 months.

The increase in revenue contrasts with Marks & Spencer Group Plc, the U.K.’s largest clothing retailer, which posted a bigger drop in quarterly sales than analysts had estimated on July 10.

“ABF remains on track to deliver substantial growth in earnings growth in the current year,” Jack Gorman, an analyst at Irish brokerage Davy said today in a note to clients. “There is an increasing prospect that the company will generate double-digit growth next year as well.”

AB Foods, which also makes the Ovaltine malt drink, reported unchanged revenue at its grocery unit, hurt by continued pressure on U.K. household budgets. This month AB Foods’ Westmill Foods agreed to buy Elephant Atta and smaller related ethnic flour brands from Premier Foods for 34 million pounds ($52.7 million) in cash. Westmill supplies foods such as Patak’s sauces to British retailers and wholesalers.

Sales at AB Foods’ ingredients unit fell 2 percent, and revenue at the agriculture division rose 10 percent. Excluding the impact of currency fluctuations, AB Foods’ revenue rose 12 percent in the first nine months of the year.

To contact the reporter on this story: Matthew Boyle in London at mboyle20@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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