Cranswick takes a tumble after issuing warning over profits

SURGING pork prices and tough consumer sentiment have caught up with premium pork group Cranswick, which yesterday issued a profits warning to send its shares diving 15 per cent.

The Hull-based group admitted profits for the half and full year will miss expectations, but insisted its long-term outlook remains strong.

Cranswick’s shares fell 110.5p to close at 629p, wiping about £53m from its market value.

Hide Ad
Hide Ad

The group warned of a tough outlook in March and again in May, and yesterday said its fears had come true during an “extremely demanding” first quarter.

While underlying like-for-like sales from the start of April to the end of July increased by five per cent, operating margins shrunk.

Total sales for the quarter fell two per cent to £195m, reflecting business transferred to its Farmers Boy joint venture with supermarket chain Morrisons.

“The difficulties facing the UK consumer and the dynamics of the competitive UK market in which the company operates are making the current financial year more demanding than usual,” said Cranswick.

Hide Ad
Hide Ad

“Whilst it is still early in the financial year, the board now expects to deliver a full-year result below its original expectations.”

Chairman Martin Davey said during the quarter pig prices, its main raw material, increased about 15 per cent from 135p per kilo to roughly 154p per kilo.

While it tried to pass these costs on to supermarkets, it was unable to do so fully. Combined with other inflationary pressures, Cranswick said this squeezed the group’s operating margins.

“We’ve experience increases of that scale in times gone by,” said Mr Davey. “The difference between then and now is the economic climate that we’re all in: where the consumer has far less disposable income on account of the increase in the cost of living, be it fuel, heating or cars.

Hide Ad
Hide Ad

“This is being evidenced through the sales of the major retailers.”

Figures last week from the Office for National Statistics showed higher shelf prices drove grocers’ food volumes down 4.2 per cent on the previous year, the largest fall since records began in 1988. In the light of this, retailers are reluctant to pass on price increases to customers, said Mr Davey.

“There would appear to be less wastage,” said Mr Davey. “People are getting more thrifty in terms of what they are spending.

“The retailers are not confident in passing on the full extent of the price increases.

“It’s certainly the toughest (market) that we’ve seen.”

Hide Ad
Hide Ad

Mr Davey added this is piling huge pressures on the UK’s pig herd.

“We’ve got pig farms recording what would be historically (high) prices, but on account of very high cereal and soya prices the cost of producing a pig is in excess of the price they are receiving,” he said.

“It’s quite unusual dynamics. “It has been a difficult period for processors, pig producers, retailers and the consumer.”

He said the only encouraging sign was that of a recent slight softening in cereal prices. “Much will depend on the northern European harvest,” he said.

Hide Ad
Hide Ad

Despite the profits warning, Cranswick said most of its categories delivered “strong growth” during the quarter. Sales of Continental products were lower but the group said it made “strong gains” in fresh pork and bacon, plus continued growth in sandwiches and sausages. Cooked meat sales were also up on a year ago.

Mr Davey said: “Pork per se is still seeing growth in its sales. It continues to be the protein that is growing. Beef and lamb sales have seen a reduction. Pork is highly competitive by comparison.”

The group, headed by chief executive Bernard Hoggarth, said the board was confident in the “continued long-term success and development of the business”, thanks to experienced management, strong products and good assets. It added net debt stood at £55m at the end of July, up from £48m at the end of March.

“The group is in a sound financial position, with committed, unsecured facilities of £100m,” it said.

Hide Ad
Hide Ad

Charles Hall at Peel Hunt reduced his recommendation from buy to hold and cut his price target from 900p to 750p.

“Clearly this is disappointing and there will be nervousness on margins going forward,” he said.

Analysts at joint house brokers Shore Capital cut their full-year profits forecast from £47m to £40m but said the group remains a “best in class operator”.

“Unprecedented conditions in the UK food retailing industry combined with rising input prices is leading to pressure on Cranswick’s operating margin,” they said.