Premier Foods tanks on profit warning

Shares in Premier Foods tanked after it warned that trading profit for full-year 2016/17 will be 10% lower than previously anticipated due to weaker-than-expected third-quarter sales and higher costs, as it announced a cost saving and efficiency programme.

The owner of brands such as Mr Kipling and Bisto said group sales in the third quarter were down 1% from the same period a year ago to £251.4m, with branded sales down 3.8% and non-branded sales up 11.6%.

Premier, which confirmed last week that it was in talks with supermarkets Tesco, Sainsbury’s and Asda about hiking its prices, also announced the start of a three-year cost reduction and efficiency programme. It is expected to deliver incremental cost savings of £10m from FY17/18, with equivalent further savings the year after.

Chief executive officer Gavin Darby said: "Sales in our third quarter were weaker than expected despite a strong December. We now expect category performance to remain challenging during the fourth quarter and as a result sales will be below previous expectations. Additionally, recovery of significant input cost inflation in certain areas is taking longer than originally foreseen. Consequently, we now expect trading profit for FY16/17 to be approximately 10% below previous expectations."

“Six out of eight of our major brands gained volume and value market share in the quarter although our categories were generally softer due to changes in retailer promotion strategies. Our international business delivered a ninth consecutive quarter of growth, up 15%.”

Shore Capital responded by downgrading its stance on the stock to ‘sell’ from ‘hold’ and provisionally cutting its trading profit forecast by 10% to £118.3m, leading to a reduction of about 15% to its pre-tax profit estimate to £73.8m.

At 0900 GMT, the shares were down 15% to 40.66p.