Cranswick expected to announce big M&S order

Cranswick makes upmarket sausages for the leading grocers
Cranswick makes upmarket sausages for the leading grocers
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Leading food producer Cranswick is understood to have won a major £50m contract with Marks & Spencer that will start in August.

The Hull-based firm declined to comment on a report in respected trade magazine The Grocer that it has won a significant cooked meats contract with M&S from rival Tulip.

Analyst Charles Hall at Peel Hunt said the new contract explains why a recent profit warning from Cranswick included sharp reductions in profit forecasts but not to sales.

“This seemed surprising at the time given the weak trends, particularly in the pork categories,” he said.

“However, the news that the company has won a major contract with M&S explains the discrepancy. This is the good news. The bad news is that management clearly knew this was coming so this is already included in profit guidance.”

He estimated that the contract will be worth around £50m, with around £30m being paid next year.

“This would add 3 per cent to sales in a full year and 2 per cent in the year to March 2020,” said Mr Hall.

“This goes some way to explaining why the company expects to deliver growth in pork next year. Importantly this contract was won prior to the recent profit warning, which resulted in forecasts for 2020 reducing from £100m to £85m.

“Clearly it is good news to land this additional business. However, M&S is known to be very price focused at the moment as it seeks to improve its price position on shelf and to protect its own margins.”

Earlier this month Cranswick warned that next year’s operating margins are likely to decline, reflecting the “potentially challenging” commercial landscape, together with start-up and commissioning costs. The firm reported strong growth in poultry and continental products in the three months to December 31, but this was offset by lower sales from pork products.