City analyst Shore Capital said ceo Gavin Darby made the comment in a conference call yesterday (April 23), after the release of the manufacturer’s first quarter results covering the three months to March 31.
Shore Capital analysts Clive Black and Darren Shirley reported Darby’s comments about the complexity of the business in a note. “Gavin Darby outlined that he felt that there remained too many SKUs [stock keeping units], too many flavours, too differentiated packaging and too many suppliers,” they said.
“As such, he felt that there are additional cost savings, that we sense are not yet in our forecasts, to emerge from rationalising its supply base, simplifying its internal processes while also reducing the complexity of its manufacturing operations. So, there could be upgrades to come from productivity and efficiency programmes,” said Black and Shirley.
All-important Power Brands
Premier Foods reported a 3.5% rise in sales of its all-important Power Brands, notching up five successive quarters of growth, in its latest financial statement covering the three months to March 31.
Sales, excluding milling, were £327M up by 1% with branded sales up 2.2% on the same period of last year.
Black and Shirley summed the results up as: “A sound performance in a tough enough market.”
Shore Capital retained its current pre-tax profit forecast of £44M, including £36M of restructuring costs. Trading profits for 2013 were forecast at £145M, including £20M of overhead cost savings that management has already delivered. That added up to an estimated earnings per share of 14.1p.
Commenting on ‘non-branded sales’ falling by 5% to £52M, Black and Shirley said it was important to note that own-label was a structurally lower component of the group’s activities now.
But they highlighted the firm’s “considerable” debt, which they estimated at about £850M by the end of the year and the group’s pension responsibilities.
Refinancing plan
Devising a refinancing plan was becoming increasingly important, they said. “Despite credible efforts with the trading strategy … we continue to believe that Premier Foods should seek to refinance potentially through both the use of the corporate bond and equity markets. Indeed, as we argued some weeks ago, Shore Capital believes that Premier Foods can only incentivise its colleagues and deliver for shareholders in the long-run by structurally adjusting its balance sheet burdens and commitments.”
Shore Capital repeated its ‘hold’ advice on the firm’s stock.
Panmure Gordon analyst Graham Jones agreed that a further equity raise was necessary to put the company on “a more sustainable path”.
Premier Food’s balance sheet remained over-geared despite the significant disposals over the past 18 months, he said.
Panmure Gordon retained its ‘sell’ recommendation on the manufacturer’s stock.
Darby said: “I am pleased to report continued momentum in our Power Brands in the first quarter. This represents the fifth successive quarter of sales growth for our Grocery Power Brands, demonstrating that our strategies of investing in marketing and improving customer collaboration are working.”
The firm confirmed restructuring of its bread business was on track and benefits from its £20M of overhead cost savings were being realised.
“Despite a continued challenging consumer environment, I believe we have the right strategies in place to make further progress this year, with expectations unchanged,” said Darby.