Premier Foods Lowers Outlook Again as Price Negotiations Drag

  • Mr Kipling cake maker says profit to miss expectations by 10%
  • Shares plunge 16% in London, adding to pressure on CEO Darby

Premier Foods Plc cut its full-year outlook for a second time in three months, sending the shares plunging as the maker of Mr Kipling cakes struggles to negotiate higher prices from supermarkets to compensate for increased costs.

The recovery of “significant input cost inflation” is taking longer than originally foreseen, the company said in a statement Wednesday, a reference to price negotiations with grocers brought about by a Brexit-induced slide in sterling. The pound’s fall has increased the cost of imported commodities including sugar and wheat.

Premier Foods said it expects trading profit to miss expectations by 10 percent and revenue to be less than forecast. It didn’t give a figure for the earnings forecast. The stock fell as much as 16 percent in London.

In addition to difficulties negotiating higher prices, the company has been hurt by a shift in supermarkets’ pricing tactics aimed at stemming the incursion of discounters Aldi and Lidl. Over the past year, Tesco Plc and J Sainsbury Plc have significantly reduced the number
of promotional discounts such as two-for-one offers.

“Grocery categories have been affected by changing retailer promotional strategies, notably a reduction in multi-buy promotions,” the company said.

The warning deals a new blow to Chief Executive Officer Gavin Darby, who is struggling to deliver growth after fending off a 65 pence-a-share takeover proposal from U.S. spice producer McCormick & Co. in April. Premier Foods last cut its sales outlook in October after a warm September dented demand for products such as Bisto gravies and Ambrosia custard.

The company on Wednesday also announced a plan to cut costs by 10 million pounds from the fiscal year 2018. Sales fell 1 percent to 251.4 million pounds ($310 million) in the third quarter, which ended Dec. 31.

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