Northern Foods profits up
LONDON, May 27 (Reuters) – UK-based Northern Foods reported a 25.3 percent rise in full-year earnings on Tuesday, at the upper end of market expectations, as it cut costs and negotiated price increases with retailers.
Shares in the maker of Goodfella’s pizza and Fox’s biscuits rose 2.6 percent to 88.25 pence by 0840 GMT.
Northern Foods, which also supplies own-label prepared foods to supermarkets, said pretax profit from continuing operations was 50.1 million pounds ($99.09 million), compared with 40 million the year before.
Revenue rose to 931.9 million pounds from 888.5 million.
A Reuters poll of 10 analysts forecast average pretax profit of 48.7 million pounds, with a range of 46.9 million to 50.8 million pounds.
Northern Foods said it had passed on “significant” commodity cost increases, especially in cereals, dairy, cocoa, and fats.
Finance Director Jez Maiden told reporters that last year prices were raised by an average of 2.8 percent. This year, he anticipates prices will rise by between 2 to 2.5 percent.
Operating margin was up 10 basis points on the previous year at 5.2 percent despite the higher commodity costs, driven by a 130 basis point increase in the chilled division and 90 basis point improvement in bakery.
However, Northern Foods warned the current trading environment remained challenging.
“We don’t expect cost pressure to ease during the year. We’re keeping a very close eye on fuel costs and they are a concern to us,” Chief Executive Stefan Barden told reporters.
The group said despite “some caution” it expects its underlying business to continue to make good progress in 2008/9.
Following the sale of several unprofitable businesses a year ago, Northern Foods is now focusing on ready meals, sandwiches, salads, pizza, biscuits, and Christmas puddings.
Barden said the group intends to take advantage of current market conditions to pursue a bolt-on acquisition strategy in both existing and other growth markets.
“We believe that the weaker companies will go to the wall and stronger companies will be able to pick up companies for reasonable prices at some time over the next year or two,” he said.
Earlier this month, Northern Foods announced plans to mothball a factory that makes Italian ready meals for Marks & Spencer, saying it did not provide adequate returns for shareholders.
Barden said there are no current plans to close any other facilities.
Northern Foods has raised its full-year dividend 5.9 percent to 4.5 pence per share.
Goldman Sachs reiterated its ‘buy’ recommendation on the stock. It said the results “demonstrate the pass through of commodity cost inflation” and described Northern Foods’ outlook as “reasonably upbeat”.