remier Foods’ shares have crashed by 16pc after the Mr Kipling maker warned that its profits would be 10pc lower than it had hoped.
The British food company blamed the disappointing update on rising commodity costs, exacerbated by the weaker pound, and supermarkets ditching their multi-buy promotions.
Investors were left reeling by the profit warning and pushed Premier Foods shares down to as low as 41p. This time last year Premier Foods rejected a 65p-a-share approach from US bidder McCormick and opted for an agreement with Japanese noodlemaker Nissan, which now controls 20pc of the company, irking some of its biggest institutional shareholders.
Gavin Darby, chief executive, said that the company was facing “significant” commodity costs, which were hitting the price of ingredients needed for its cakes and sauces.
Premier Foods posted a 1pc fall in group sales for the 13 weeks to the end of the year, despite a 4.5pc lift in sales during December. It sold 216 million Mr Kipling mince pies during the year.
The company dampened hopes of a near-term boost by cautioning that it expects sales for the full year to be below expectations as the trading environment remains “challenging”, raising analyst fears about the strength of Premier Foods’ brands.
Mr Darby had previously argued that Premier Foods was better protected than its multinational food rivals, such as Unilever, because it manufactured all its products in the UK and paid for 89pc of goods in sterling.
However, he said that rising global commodity costs have been “exacerbated by the devaluation of the pound.”
Mr Darby confirmed that the commodity pressures meant that Premier Foods would have to raise prices.
“We have been very clear that this will be material and will impact our prices in the UK by the mid-single digits,” the food boss said.
It means that Mr Kipling fondant fancies, Bisto gravy, Ambrosia custard and Sharwoods sauces will join Marmite, Walkers crisps, Birds Eye fish fingers, and Cadbury Freddo bars in becoming more expensive as inflation is passed on to consumers. Other food rivals, like Mondelez maker Toblerone, Quality Street maker Nestlé and Maltesers maker Mars, have resorted to so-called ‘shrinkflation’ – reducing the size of the product but keeping the price the same.
Compared to its larger food rivals, which generate a large chunk of revenues overseas, meaning they have a cushion against falls in the pound, Premier Foods only generates 5pc of sales internationally. These rose by 15pc during the quarter.
The Premier Foods boss also said that the company was hoping to protect its profitability with a £10m cost saving programme that would include merging its two grocery and desserts distribution divisions. Mr Darby said that the company would be consulting with staff about potential redundancies.
“Today’s update represents a material increase in our concerns surrounding Premier Foods’ ability to recover from its long-standing ‘zombie’ status,” said Darren Shirley at Shore Capital.
“Such sustained weak trading leads to increasing concerns around the growth credentials of Premier Foods’ categories and the strength of the group’s brands within the categories… whilst management has delivered a range of innovation across its brands, which we applaud, such actions have singularly failed to gain traction with consumers.”