Associated British Foods Plc fell the most in the U.K. FTSE 100 Index after saying the falling euro will take a bigger bite out of full-year profits than it had earlier expected.
The owner of the Primark budget-fashion chain said it expects a “modest” decline in adjusted earnings per share this year, worse than the “marginal” decrease it had seen in February, as the rise of sterling and the dollar against the euro will trim profits by about 25 million pounds ($37 million.) The shares fell as much as 5.2 percent in early London trading, the most in more than four months.
“We are more pessimistic on our earnings outlook simply because of currency movements,” Chief Executive Officer George Weston said in an interview. “If they continue into next year, they will have a much bigger impact on next year’s earnings.” The pound has strengthened by 8.2 percent against the euro and weakened by 4.6 percent against the dollar so far this year.
Primark, which buys its cheap-chic garments with dollars and sells them in sterling and euros, has fueled AB Foods’ growth as a record in global supply has led to a slump in profitability at its sugar-production business. The retailer is expanding across Europe and into the U.S., with its first outlet there set to open in Boston in the fall.
“The lowered guidance and likely consensus EPS reductions might have quite a negative impact on the stock price,” Andrew Wood, an analyst at Sanford C. Bernstein, said in a note. Wood said his earlier estimate of a 2 percent decline in full-year earnings per share “might now need to be reassessed.”
AB Foods fell 2.3 percent to 2,798 pence at 8:26 a.m. in London.
Exchange-rate fluctuations will also impact Primark’s profit margins in its next fiscal year, the London-based company said in a statement, as forward currency contracts set at more favorable exchange rates expire.
Primark’s first-half adjusted operating profit rose 11 percent to 322 million pounds ($479 million), excluding the impact of currency fluctuations. The unit reported a 15 percent boost in sales in the period, although like-for-like sales were unchanged, held back by northern Europe’s warm fall weather and the impact of new stores on existing ones. Primark’s expansion into the U.S. is “well-advanced,” AB Foods said.
Weston said early indications are “very good” for Primark’s spring-summer ranges in stores now.
The company’s adjusted earnings per share in the six months through Feb. 28 rose to 46.1 pence from 45.8 pence a year earlier, the company said. Analysts were predicting adjusted profit of 45.8 pence a share, according to the average of seven estimates compiled by Bloomberg.
The company plans an interim dividend of 10 pence a share, meeting the estimate compiled by Bloomberg News.