AB Foods Profit Set to Fall Further as Currencies Hurt Sugar

  • Earnings have largely stagnated since 2013 amid sugar slump
  • Outlook for 2016 `much more cautious than expected': Bernstein

Associated British Foods Plc forecast another year of falling earnings as the weakness of the euro and emerging-market currencies hurts the owner of Primark budget fashions.

Profit in the year through September 2016 will show a “modest decline,” AB Foods said Tuesday as it reported an outcome for the prior 12 months that beat analyst estimates.

AB Foods shares fell as much as 2.9 percent in London as investors focused on the pessimistic outlook. Earnings have largely stagnated since 2013, as plummeting profit in the company’s sugar-production business has canceled out the growth of the Primark chain and a food-making division that includes Kingsmill bread and Ovaltine drinks.

The 2016 outlook “was much more cautious than expected,” said Andrew Wood, an analyst at Sanford C. Bernstein in London. “If guidance turns out to be correct, this will mean two consecutive years of flat or negative earnings per share growth.”

AB Foods shares fell 0.4 percent to 3,422 pence at 8:16 a.m. in London, trimming their gain for the year to 8.5 percent.

The weakness of the euro against sterling will have a “significant impact” on the profitability of the U.K. sugar business, Chief Executive Officer George Weston said in an interview. At Primark, “we are selling a lot in euros, but buying garments in dollars.”

The company has mitigated a “good chunk” of the cost increase coming from the dollar’s strength versus the euro, “but not all of it,” Weston said.

Adjusted earnings per share fell 2 percent to 102 pence in the 12 months ended Sept. 12, the London-based company said in a statement Tuesday. That compares with the 98.4 pence average estimate of 22 analysts compiled by Bloomberg.

AB Foods has come to rely on Primark for growth as record global sugar supplies have led to a slump in profitability at that business. The retailer’s expansion is continuing with as many as three new stores in Italy, the European Union’s second-biggest clothing market, the first of which will be in Milan in early summer 2016.

Primark’s sales rose 13 percent last year on a constant-currency basis and 1 percent on a like-for-like basis, fueled by new outlets in France. The chain’s profit margins narrowed to 12.6 percent from 13.4 percent due to increased discounts and also on the strength of the dollar, the company said.

Primark’s first U.S. store in Boston has been “trading well” since it opened on Sept. 10, Weston said. The retailer plans to open seven more outlets in the country in the current financial year.

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