What Premier Foods (PFD) Said on Its H1 Earnings Call

Key Points

• Premier Foods raised its full-year adjusted profit and earnings outlook to the top of its previous range, citing lower interest costs after refinancing. It also announced its first interim dividend in 19 years, at 1.12 pence per share.
• First-half revenue rose 2.4% to £514 million and trading profit increased 2.4% to £72 million. Sweet Treats sales grew strongly, but divisional contribution fell 16% to £12 million amid marketing costs and weather-related production disruption.
• Net debt fell to £131 million, more than £70 million lower year over year, while free cash flow rose nearly 44%. International revenue increased 8%, and the company said acquisitions and acquired-brand growth remain central to its medium-term revenue ambitions.

Premier Foods LON: PFD raised its adjusted profit and earnings expectations to the top end of its previous range, citing lower-than-expected interest costs after refinancing its debt, and announced its first interim dividend in 19 years.

The food producer reported revenue of £514 million for the 26 weeks ended Sept. 26, up 2.4% from a year earlier. Branded revenue rose 3.2% to £467 million, helped by strong sales in its Sweet Treats division, while trading profit increased 2.4% to £72 million.

Adjusted profit before tax rose 3.8%, and adjusted earnings per share increased 4%. The interim dividend was set at 1.12 pence per share.

Chief Financial Officer Duncan Leggett said the upgraded outlook for adjusted profit before tax and earnings per share reflected the company’s revised debt structure. The call transcript identified the other presenting executive only as Alex.

Sweet Treats Sales Rise as Costs Weigh on Profit

Sweet Treats branded revenue climbed 6.7% to £123 million, with Mr Kipling sales growing more than 10%. Including non-branded products, divisional revenue rose 6.9% to £142 million.

Despite that sales growth, divisional contribution fell 16% to £12 million. Leggett attributed the decline partly to the timing of marketing spending and manufacturing disruption during prolonged hot weather, which made it difficult to set chocolate on Cadbury Mini Rolls and forced a temporary halt in production.

Strong demand for some new products also required additional labor on production lines. Leggett said the company had capital investment plans to address the issue, but some of the associated costs would continue into the second half. He said the weather-related disruption was behind the business and that Premier Foods continued to expect improvement in Sweet Treats’ divisional contribution over the medium term.

Alex said the company was evaluating whether additional cooling on the Cadbury line would be economical if similar hot weather recurred.

Grocery branded revenue, which includes international sales, rose 2% to £344 million, despite the effect of warm weather on demand for some products. Total grocery revenue increased 0.8% to £372 million, while divisional contribution rose 3.2% to £96 million.

Debt Refinancing Supports Outlook

Premier Foods ended the half with net debt of £131 million, more than £70 million below the level a year earlier, and leverage of 0.6 times. Free cash flow increased nearly 44%, which Leggett attributed to tight working-capital control.

The company used approximately £150 million of cash and a £175 million term loan to repay bonds that matured in mid-October. It now expects interest costs of £18 million for the full year, down from £39 million approximately six years ago.

Capital expenditure rose to £36 million in the first half, up 54% from a year earlier. Premier Foods maintained its full-year capital spending guidance of £60 million, with investment including projects to expand capacity, improve efficiency and bring production in-house.

Leggett said the company generally expects to operate with leverage of between one and two times over the medium term, depending partly on the timing of acquisitions.

Acquisitions and International Growth

Premier Foods said its three acquired brands—The Spice Tailor, FUEL10K and Merchant Gourmet—each delivered double-digit revenue growth in the first half. International revenue rose 8%, including 10% growth in the second quarter, while revenue from extensions into new categories increased 15%.

Alex said acquired brands accounted for about 8% of group turnover and were helping make the business less sensitive to weather. He said further acquisitions and growth in existing acquired brands were central to the company’s ambition of delivering consistent mid-single-digit revenue growth over the medium term, although it had not yet reached that level.

The company made no acquisitions during the half. Alex said Premier Foods would continue to look for brands in the U.K. and its target overseas markets, including Australia and New Zealand, Europe and North America. He said its search was not limited to products stored at ambient temperatures.

Inflation and Consumer Demand

Leggett said Premier Foods uses hedges, forward contracts and fixed supplier pricing to manage input costs. He said it was too early to quantify inflation for the following year, although he expected it to be higher than the low-single-digit assumption the company used entering the current year. The outcome would partly depend on where oil prices settled, he said.

Alex said the company did not currently expect to take pricing action before its usual annual review toward the end of the year. He also said the U.K. grocery market was tougher and consumers were under pressure, but that more meals cooked at home could provide some protection for Premier Foods’ brands.

About Premier Foods (LON:PFD)

Premier Foods plc, together with its subsidiaries, manufactures and distributes branded and own label food products in the United Kingdom, other European countries, and internationally. The company operates through Grocery, Sweet Treats, and international segments. It offers a portfolio of product categories, including flavorings and seasonings under the Bisto, OXO, Paxo, and Saxa brands; cooking sauces and accompaniments under the Sharwood's, Loyd Grossman, Spice Tailor and Homepride brands; quick meals, snacks, and soups under the Batchelors and Smash brands; ambient desserts under the Ambrosia, Bird's, and Angel Delight brands; and ambient cakes under the Mr Kipling and Cadbury brands.

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