Cranswick has beaten City expectations by announcing a 12% rise in sales in its full-year results today, with pre-tax profit up by 6%.
The premium pork supplier reported total sales of £995m for the 12 months to 31 March 2014, up 14% from £875.2m a year earlier. Underlying sales, less any contributions from acquisitions, stood at £980.6m, up 12% year on year.
Adjusted pre-tax profit increased by 6% to £52.2m compared with £49.1m in 2013. The City consensus expectation had been a profit of £51m.
The company said market conditions had been challenging – with pig prices at record highs during the period – but pork continued to perform well against other, more expensive proteins and consumer demand remained high.
“Cranswick’s growth continues to be underpinned by the quality of its products which deliver real value to and great food experiences for the UK consumer”
Adam Couch
Fresh pork, bacon and cooked meats had seen especially strong growth, CEO Adam Couch added in his operational review. Sales of fresh pork were up 15% year on year, helped by strong demand from export markets, while bacon sales increased by 14%, driven by growing consumer appetite for premium products.
“The introduction of speciality cures and smoked products supported this growth along with ongoing development of ready-to-cook ranges which are now also being produced across the fresh pork and sausage categories,” Couch said.
Meanwhile, cooked meat sales increased by 16%. “Demand for premium air-dried hams helped drive this growth along with strong promotional activity, particularly in the fourth quarter of the financial year,” Couch said.
Sausage sales were up by 2% – driven by premium SKUs – and the company decided to consolidate sausage production at one site. Premium beef burger sales performed strongly thanks to the good barbecue weather in 2013. “A second burger production line has now been commissioned to meet increased demand in the forthcoming summer season,” Couch said.
Cranswick’s pastry sales were up by 138% – from a low base – following its investment in a new pastry-making facility at Malton, although start-up costs were higher than anticipated. Continental meat sales were up by 3%, while sales in Cranswick’s sandwich division were down 5%.
“Cranswick’s growth continues to be underpinned by the quality of its products which deliver real value to and great food experiences for the UK consumer,” Couch said.
“The business operates from highly efficient and well-invested facilities with empowered management teams working collaboratively and sustainably with the group’s customers and suppliers. The Company remains highly cash generative allowing it to make attractive returns to shareholders, to continue to invest in its infrastructure to build capacity and drive further operational efficiencies and to pursue earnings enhancing strategic acquisitions.”
Analyst reactions
House broker Shore Capital said Cranswick’s results were “comfortably ahead” of its own forecasts and consensus expectations in the City. “For Cranswick to deliver such robust sales and profit growth through a period when the UK consumer remained under pressure, UK grocery volumes were flat to negative and the group’s primary input cost (UK pigs) reached and sustained record prices is, in our view, an outstanding achievement.
“We reiterate our view that Cranswick stock, supported by an excellent management team, well-invested industry-leading infrastructure, strong cash flows and balance sheet and considerable medium-term corporate opportunities represents a core holding in any UK focussed small-mid cap fund.”
Investec, also house broker, said Cranswick had had “a strong year”, and reiterated its buy recommendation. “Despite rising pig prices and start-up costs for pastry, profits still improved and net debt was reduced.”
Numis highlighted that Cranswick had experienced strong growth in premium products, “with demand for super-premium sausages and bacon noticed”. “The only trading feature to raise eyebrows is that sausage production has been consolidated at the main Hull site – there looks to have been some disappointment regarding sales from the former Norfolk site,” analyst Charles Pick added.
Meanwhile, Oriel Securities said Cranswick offered “sustainable organic volume growth in pigmeat with consistent positive free cash flow” and gave the stock an ‘add’ recommendation. “Cranswick’s outlook is for a more normal year in FY2015 with pig prices expected to rise less sharply,” it added. “Underlying sales growth should be of the order of 5% to 6% with margins slightly higher due to ongoing efficiencies.”
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