Meat giant Cranswick brushed off falling sales of its core pork products this week to post first-half sales growth thanks to category expansion, but investors remain wary of butcher shortages, capacity constraints and falling sales to China.
The Hull-based business reported a 6.6% increase in revenue in the six months to 25 September to £993.1m, with like-for-like sales up 6.4%. The sales increase was underpinned by volume growth, with volumes up 4.1% despite a 5.3% drop in fresh pork sales.
Its core pork products were hampered by an 11.2% slump to exports to the Far East and the inability to export to China from its Norfolk facility due to the voluntary suspension of the site’s China export licence after a Covid outbreak.
However, this was mitigated by “exceptionally strong” poultry revenue growth, which was up 35.5% in the period following an uplift in capacity at its Eye facility. Additionally, its convenience division, which focused on cooked meats, was up 4.9% as retail demand increased.
The booming poultry sales helped adjusted group operating profit increase by 12.3% to £69.6m as adjusted group operating margin improved by 35bps to 7%, despite Cranswick cautioning that profits were dampened by inflationary pressures, particularly wage inflation.
Cranswick shares have suffered amid the slump in demand from China and shortage of UK-based butchers hampering its production volumes. The shares were at an all-time high of 4,200p in August on its long record of strong growth, but have faltered more recently, falling by around 15% over the autumn.
The shares initially reacted positively to the update, rising 1.1% to 3,672p on Tuesday, but fell back 5% on Wednesday to 3,488p on continued concerns over the prospects of its pork division.
Jefferies noted that Cranswick’s own caution “looks justified in the face of a less certain second half”. “Behind well-documented risks to the supply chain this winter, UK domestic pork sales are beginning to normalise and China exports are softening,” the broker said.
However, Third Bridge analysts argued Cranswick is in a better position than competitors to cope with disruption “thanks to newer manufacturing sites and more automated processing plants”.
Panmure Gordon added: “With Cranswick investing in further capacity expansion to meet rising demand, and in automation to mitigate rising labour costs, we expect it to continue its impressive record of consistent growth.”
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