Shares in Premier Foods (PFD) have this morning rocketed up by 21% after the grocery supplier increased quarterly branded sales for the first time in two year and operating profits returned to the black.
The Mr Kipling, Batchelors and Bisto owner’s first-half results beat City expectations with branded sales rising 0.1% in the six months to 3 October thanks to a 1.6% rise in the second quarter. Branded sales fell by 4.3% in the second quarter a year ago, with that decline getting slowly better in the third, fourth and first quarters since, finally returning to growth in the past three months.
Premier is also adding to its branded portfolio after teaming up with The Great British Bake Off judge Paul Hollywood to launch a range of 12 sweet and savoury baking mixes (read the full story here at thegrocer.co.uk).
“We are pleased to see group branded sales growth in both the first half and second quarter of this financial year, as well as trading profit progression,” CEO Gavin Darby said. “This reflects the clear benefits from our continued commitment to brand investment and innovation. It is also encouraging to see strong sales growth in our international business following the investment we’ve made in additional resources.”
Premier has been squeezed in recent years as the discounters, as well as the convenience and online channels, have grown rapidly and brutal supermarket price wars and food price deflation combined to produce turbulent trading conditions.
Darby’s turnaround plan at Premier has included investing heavily in its core branded lines and introducing new products to the market.
The business invested £13m in consumer marketing in the first half of the year, a slight decline on the prior period, but expects to ramp this up for the crucial third quarter, including Christmas, to take full-year spend to between £36m and £38m in the full year.
The cake and flavourings & seasonings categories, where the group has concentrated investment in the past 12 months, have recorded volume, value and market share gains in each of the main brands, including Bisto gravy, Oxo cubes and Mr Kipling cakes.
The performance helped trading profit increase 8.4% to £50.6m and put operating profit back in the black at £23.3m, compared to a £12.8m loss last year after impairment charges took their toll.
Overall revenues were still down £2.7m to £341.2m, compared to the first half a year ago, but on an underlying basis, only taking the continuing operations into account, the top line was up 0.4%.
Mr Kipling and the sweet treats division has been a star performer for the business, although sales of Mr Kipling came in 2.6% lower at £80.4m in the half as it came up against strong numbers from last year following a big relaunch. The division is on track to deliver double-digit margins in FY15/16, a year earlier than previously expected.
“In the third quarter of the year, we expect to deliver positive group branded sales growth, with sweet treats performing more strongly than grocery,” Darby added. “The industry backdrop remains a challenging one, but with strategies which are delivering tangible results and significantly higher marketing spend planned for the second half, our profit expectations for the year remain unchanged.”
Branded sales growth for full year is expected to come in at 1% to 2%, with net debt also expected to fall “significantly” in the second half from £585.3m.
The positive update has sent shares soaring more than 21% this morning to 44p – the highest the stock has been since May. Premier’s share price fell off a cliff in March 2014 from 161p to 66p, wiping more than £700m off its market value, following Morrisons posting a slump in full-year profits to a five-year low sparking fears of an industry price war. The stock has continued to falter ever since as the big four grocers have all continued to struggle.
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