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Pioneer Foods Profit Falls as South Africans’ Spending Slows

Nov. 26 (Bloomberg) -- Pioneer Foods Ltd., a South African cereals and fruit-juice producer, said full-year earnings fell as higher prices held back consumer spending on bread, corn and wheaten products in Africa’s largest economy.

Net income dropped 17 percent to 604 million rand ($68 million) in the 12 months ended September, the Paarl, South Africa-based company said in a statement. Earnings per share adjusted for a charge relating to the sale of stock to black investors climbed 6 percent to 4.26 rand, beating the median estimate of 4.09 rand by 12 analysts surveyed by Bloomberg.

“The year under review continued to be challenged by muted consumer spend,” Pioneer said in today’s statement. “Raw-material pricing remains volatile and indications are that prices could weaken in the months ahead. That should bring some relief to the consumer.”

Inflation on Pioneer’s basket of products, which includes Weet-Bix cereal and Ceres fruit juice, was estimated at about 13.5 percent for the 11 months through August, it said on Sept. 4. That’s more than double South Africa’s inflation rate of 5.6 percent in October, which was the highest since April.

While Pioneer has a strong portfolio of brands, “the optimization of these brands remains questionable,” Jacques Theron, a portfolio manager at Absa Asset Management Private Clients, said by phone from Johannesburg before the results were released. “It seems to lack value-added products in this strong portfolio compared to its peers.”

Under Pressure

Full-year sales increased 10 percent to 18.6 billion rand, Pioneer said. Tiger Brands Ltd., South Africa’s largest food company by market value, said on Nov. 21 sales for the same 12 month period rose 11 percent, while profit advanced 5 percent.

South African consumers’ spending power is under pressure from an unemployment rate of 25.5 percent and economic growth that will slow to 2.5 percent this year, the lowest since the 2009 recession, according to government estimates.

Pioneer’s Chief Executive Officer Andre Hanekom said on Oct. 17 he will retire at the end of March after 24 years at the company.

This has created an opportunity for Pioneer to bring in someone with a background in fast-moving consumer goods and emerging markets, Standard Bank Group Ltd.’s equity-research unit said in a note to clients on Oct. 17. Pioneer could consider people from Unilever Plc, Kraft Foods Group Inc., Kellogg Co. or Reckitt Benckiser Group Plc, the bank said.

“This could be the catalyst taking the company up a gear, as it grows into its increased capacity through a more aggressive investment behind their brands, which we believe has been below that of its competitors,” the analysts wrote.

Pioneer climbed 0.9 percent to 58.60 rand by the close in Johannesburg, the highest level since July 2, in Johannesburg. About 89,000 shares, or 59 percent of the daily average over the last three months, changed hands.

To contact the reporter on this story: Jaco Visser in Johannesburg at avisser3@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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