The maker of well known brands such as Mr Kipling cakes, Branston pickle, Ambrosia custard, Bistro gravy and Hovis bread, Premier Foods, has had shocked profits with a fall of 22% to 19.02p in response.
The UK’s largest food retailer expects profits to drop between £70 million and £65 million for the period to June 25, compared to the first half of last year where the company made a trading profit of £94 million.
Premier Foods gave a few reasons for the profit warning. The first reason was due to the company losing a £30m pie contract with M&S to rival Samworth Brothers. Secondly, a ‘major’ retailer thought to be Tesco, decided not to stock many of Premier Foods’ line after it increased its prices. However, the items have been relisted after the issue had been resolved. It still cost Premier £10 million after the falling out.
Premier’s markets have also declined. Grocery and bread markets had shrank by 5% due to the weak consumer environment and “unseasonably warm weather” which has knocked profits.
Chief Executive, Robert Schofield said that the main reason for disruption was because of the increase of commodity costs, which climbed by 14% year-on-year and added £150 million to the company’s cost base.
Premier Foods has since won new contracts from M&S and has also picked up new business with new clients and restaurants to help make up for their loss. Restaurants have also been feeling the pinch with the tightening of consumers eating out, increased cost of restaurant insurance quotes and cost of suppliers.
Schofield said “I’m not sure we can make up for the losses in the second half but we can claw back some lost grounds towards full-year estimates in the coming months”.
He expects that trading will return to normal in the second half of the year, as relations with Tesco and M&S improved.