The soaring price of wheat, the now unfashionably heavy debt levels, and the cut in the dividend. These fundamentals dominated the headlines when Premier Foods announced a £73.5m pre-tax loss earlier this month.

But CEO Robert Schofield appears to be making a reasonable fist of recovering commodity price increases, with 85% of the extra £225m added to the cost base recovered so far. There's new management on board in the bakery division. And shareholders must also be reassured by the company's extra financial headroom after Schofield announced an additional £500m in working capital in addition to the dividend cut. In the meantime, the integration of RHM, and the £113m of cost savings identified, are reportedly on track.

It should mean a substantial rise in Premier's share price, which had been driven to a low of 92p as speculation mounted during the closed period preceding the results. Shouldn't it?

Well, the price is up, but at 102p (as The Grocer went to press) it's up only a fraction, and is still well short of the 330p high one year ago. While the market is particularly skittish right now about a business that is highly exposed to the uncertainty in the commodities market, and is unforgiving of any company that's required to reduce its dividend, very little has been said about the core grocery business, or own-label or cakes.

An examination of the performance of these other divisions suggests some of the problems are quite specific. So, though profits in the bakery division were indeed down by a calamitous 48.4%, as the boxout shows (see right) four of the divisions recorded a fall in profits in total. And a further two recorded a fall in sales.

In the convenience divisions, whose brands include Branston, Bisto and Sarson's, trading profit was down 5.9% to £43m on sales down 2.7%. The spreads, desserts and beverages division - home of Ambrosia, Angel Delight and Sun-Pat - saw a near 10% fall in both sales (to £251m) and profits (to £60.6m).

Analysts believe more needs to be done in Premier's traditional ambient portfolio. "After acquisitions have been stripped out, Premier has struggled to drive organic growth in its core ambient grocery business," says Martin Deboo, an analyst at Investec. "Margins have progressed in the latest year, but sales have remained flat. Stimulating at least modest organic profit growth in this business is the acid test of Premier's strategy."

Although new life has been breathed into brands such as Branston (although sales of its baked beans took a tumble after heavy promotion in 2006), they are often dragged down by less popular products because of the diverse portfolio. "It is partly neglect, partly distraction," says one analyst.

Another suggests Schofield's extensive acquisition programme has resulted in a 'Frankenstein' company, with a strange mix of sometimes dated brands. "It needs to take a closer look at some aspects of its portfolio. They've got Sarson's vinegar, for example. That is hardly on trend is it?"

However, Credit Suisse analyst Charlie Mills believes it is important to look at the broader picture.

"These products are never going to be high-growth. They are mature, iconic, brands unlikely to achieve more than 2% growth. But together they add up to a strong portfolio of cash-generative businesses," he says.

Graham Jones at Panmure Gordon agrees. "It is not a sprawling mix of unwieldy brands. Premier has done a good job of creating a centralised group with a small number of efficient factories . It has done well, too, with the RHM culinary businesses, which has returned to growth quicker than expected. One of the biggest disappointments in this area is the continued decline in own label, which is still quite significant."

Another bright spot is the Campbell's business, acquired in 2006. Sales rose by 2.7% - reversing a 4% sales decline the previous year - and profits on a pro-forma basis were up 23.4% to £51.1m. The second half of 2007 also saw the launch of a new liquid Oxo stock and Soupfulls, the first-ever Batchelors liquid soup. With new advertising and new pouch capacity it offers a ray of hope, and is a sign of things to come.

The key for Premier, analysts say, is threefold: to realise the cost savings from the integration of RHM, recover commodity price increases in full so as not to dilute this, and drive better organic growth in ambient groceries. As Deboo says: "It is a big challenge, but achievable."

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