Premier Foods fails to beat peak pandemic sales numbers
The Bisto and Mr Kipling owner reported a 6.5% dip in sales to £394.1m in the 26 weeks ended 2 October 2021 (H1), up 7.5% from the same period in 2019. Trading profit fell 12.2% to £57.8m (up 13.1% from 2019).
Premier attributed the shift to the 'unique nature of the prior period' in which it had experienced exceptional patterns of demand for its products during the peak of the COVID pandemic.
Branded products lead the pack for the manufacturer, with sales over the two-year period up 11.4% and up 13.3% in the second quarter of the current financial year. Non-branded sales were down 14% over two years and down 16.3% in the second quarter.
Grocery sales dip
The picture was worse in the grocery category, where branded (down 10.3%) and non-branded (down 10.1%) sales dropped compared with the previous year.
Sweet treats faired much better, with growth of 5% in the first half of the year to £110.1m. Branded was again the key driver, taking in sales of £100.1m – up 6.3%.
Premier said it had not experienced the same elevated volumes in this category compared to the rest of the business, as consumers focused on purchasing key household staple products as the UK entered lockdown restrictions.
Alex Whitehouse, Premier Foods chief executive, highlighted the strong performance of the manufacturer’s branded goods.
‘Navigating industry challenges’
“I am particularly pleased with how well the business is successfully navigating the widely reported industry wide challenges including logistics, labour shortages and input cost inflation to deliver such a strong set of results, which again underlines the robustness of our operating capabilities,” he added.
“As we look ahead to the second half of the year [H2], we will be launching a range of insight driven new products and supporting six of our key brands with advertising.
“We will expand our presence in adjacent new categories, building on the initial success of Cape Herb and Spice and Oxo Rubs & Marinades, as well as bringing to market premium Mr Kipling biscuits and a range of branded Ice cream. We will also continue to develop our overseas businesses including the full rollout of Mr Kipling in Canada and the test launch of Mr Kipling in the USA.”
While Premier stated that it was on track to deliver against its profit expectation for the full-year, Jefferies analysts Martin Deboo said the manufacturer would still be under scrutiny – especially against the current backdrop of COVID-19 and the fallout of Brexit.
‘Review the moving parts’
“We will want to review the moving parts in more detail,” he explained. “Much remains uncertain in H2, with winter supply chain interruptions the principal risk for us."
However, he said the company's confident commentary and good position with regard to net working capital were reassuring.
Clive Black at Shore Capital noted Premier’s self-improvement in its half-year results, but questioned the low rating of its stock in light of its achievements.
“Premier's stock has been structurally re-rated from exceptionally low levels but still, to us, trades on discounts that are too deep considering the quality and market positions of its brand portfolio, its mid-teens percentage trading margins, the growth strategy and the structurally strengthened balance sheet,” said Black.
“Hence, we deem the stock to still represent deep value for investors in the UK mid cap arena, noting the attractive FCF [free cash flow] yield. We commend Alex Whitehouse and his team on the controlled work to self-improve and advance Premier towards the brighter future we see ahead.”
