Premier Foods says TV advertising key to taking on rivals

Premier Foods, whose brands include Hovis bread, Branston pickle and Bisto gravy, said first-quarter sales fell 5.1 per cent, but kept its full-year outlook unchanged.

First-quarter sales of its key brands, products that it is focusing on growing such as Hovis and Mr Kipling cakes, rose 3.4 per cent.

The group, which makes Quorn in Stokesley in North Yorkshire, said branded chilled sales fell 4.7 per cent in the first quarter following the heavyweight Quorn campaign during the same period last year.

The restructuring of the Quorn supply chain is continuing and the group said the anticipated cost savings are being delivered to plan.

The group warned that its Hovis brand will lose market share in the current quarter as rivals step up promotional activity.

While Hovis boosted share in value terms to 25.6 per cent during the first three months of 2010, it is under pressure from the likes of Warburton's and Kingsmill.

Premier said it expects a fightback by Hovis in the second half of 2010 thanks to the TV advertising campaign. This will be backed by the recent conversion of the entire Hovis range to 100 per cent British wheat.

Sales volumes of branded ranges improved 2.2 per cent in the quarter, but the ongoing focus on price meant the figure in value terms was down 0.3 per cent.

Non-branded sales were sharply lower due to promotional activity and lower flour prices.

Chief executive Robert Schofield said: "At the end of last year, some commentators were saying promotion levels were going to come down again, but quite frankly in the first quarter it's remained at the level it ended the year at."

Evolution analyst Warren Ackerman said: "Whilst the continued volume share gain from Premier's key drive brands is encouraging, the scale of the group's headline sales decline in the first quarter is larger than we anticipated."

Shore Capital, which has a 'sell' rating on the stock, said: "Premier Foods is behind our revenue expectations on every line of the business; the company seemingly protecting margins but at a cost to the sales line."

Mr Schofield said that Premier Foods would spend about 6m on consumer and in-store marketing in the first half and had a heavy programme for the second half.

"At the moment it's more on television than anything else," he said.

Premier Foods added it expected to cut net debt by 100m in the first half.

Analysts expect the group to post full-year trading profits of about 284m, compared with 323m for 2009.