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Northern hopes to feed off festive sales as second quarter slides
PIES-to-puddings group Northern Foods saw its shares tumble last night following disappointing second-quarter sales, but the group said it should see a recovery in the run up to Christmas.
Leeds-based Northern blamed the disappointing figures on a 7.5 per cent fall in frozen food sales during the six months to September 26.
This was attributed to the decision to stop making small frozen pies for Birds Eye. Instead the group is to roll out individual frozen pies under its McDougall's brand which should boost sales over the following months.
Chief executive Stefan Barden said: "The main hit has been that we walked away from the agreement that we've had with Birds Eye. We stopped supplying Birds Eye at the end of quarter one and we're not re-supplying retailers with McDougall until quarter three."
According to the group, pies are very popular during a recession as customers return to comfort food at affordable prices.
The group is hoping that its Christmas pudding sales push will promote a similar return to traditional eating habits.
A new TV advertising campaign for the group's branded Matthew Walker Christmas puddings will be launched in four weeks' time.
The group made over 19 million Christmas puddings last year, making it the UK's biggest maker of the traditional dish. It makes most of its profits in the run up to Christmas.
Northern, which makes Goodfellas pizza and Fox's biscuits in addition to own-label ranges for the leading supermarkets, reported a 2.9 per cent increase in underlying sales in the first half to September 26.
Strong underlying growth in the first quarter of 5.5 per cent fell to just 0.3 per cent growth in the second quarter.
Northern said the closure of a pizza manufacturing site in Ireland and the termination of several non-profitable own-label contracts had also affected frozen sales. The group is keen to get out of high-volume, low-margin frozen foods in order to boost profits in the future.
Mr Barden said he was happy with annual pre-tax profit forecasts of 37m and forecast like-for-like sales growth of between two and four per cent for the year as a whole.
The chilled division reported the strongest growth in half year underlying sales – up 8.8 per cent.
Northern said new discount lines in sandwiches such as the 1 sandwich for Tesco and the budget salad bowl for Sainsbury's boosted the division's sales but it warned that profitability in the chilled division would be hit by the lower margins on these discount brands and flat ready meals sales.
Over the past year the market for ready meals sales has declined by two to three per cent, but there are signs of a pick up as the economy edges out of recession.
In the bakery division underlying sales rose 3.9 per cent over the first half.
This reflected a seven per cent increase in the first three months following a new "Vinnie" TV advertising campaign for Fox's biscuits but sales growth declined to just one per cent in the second quarter.
Northern said this should pick up once the new campaigns for Christmas puddings and its Rocky biscuit bars kick in.
Shares in Northern, which have outperformed the FTSE All-Share Food Producers Index by five per cent since the start of the year, fell six per cent last night to close at 67p.
Analyst Alex Sloane at Evolution Securities said: "Northern explained the sharp slowdown in underlying second quarter sales was largely due to the exiting of high volume/low profit own label contracts across all three divisions.
"This sounds sensible, but we will have to wait until the November interims to see what impact this strategy has had in raising group margins." The group reports its interim results on November 10.
He added that he expected a recovery in frozen and ready meal sales in the second half.
Analyst Nicolas Ceron at brokerage Numis downgraded the stock to "sell" from "reduce".
"The group has a history of delivering strong sales growth without profits growth," he said.
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Thursday 24 May 2012
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