Premier Food shares jump as cost cutting boosts profits (but underlying sales are falling)

Premier foods, the company behind the Hovis bread and Mr Kipling brands, expects full-year results to be at the top end of forecasts after reporting a 50 per cent jump in first half underlying trading profit (release).

It now expects cash flow for 2013 to be between £50m and £70m – up from previous expectations of between £40m and £60m. This comes as underlying trading profit hit £47.4m in the six months to 30 June 2013 thanks almost entirely to a £20m cost saving programme.

Premier Foods expects to be able to find another £10m of savings in the second half by working with fewer suppliers. The restructuring of its bread and milling business is also ahead of schedule.

However, the picture isn’t so rosy when looking at the products themselves. Profits from its grocery division rose slightly by 0.3 per cent, while there was a 23.8 per cent fall in the bread division. Meanwhile, underlying sales excluding milling were down 0.9 per cent, driven by declining sales in both its grocery (down 1.0 per cent) and bread (down 0.7 per cent) units.

Commenting on the results, chief executive Gavin Darby said:

A 50% increase in Trading profit is a very encouraging result given the highly competitive environment. This shows that our turnaround strategy is delivering at the bottom line. We have now grown sales in our Grocery Power Brands for six consecutive quarters as we continue to build partnerships with our customers, deepen our understanding of consumers and invest more effectively in supporting our brands....

The second half will see further plans to grow our Power Brands, in addition to a new £10m of cost savings that we have now identified from our efforts to reduce complexity. As a result, we now expect Full Year Trading Profit to be around the top of market expectations.

Looking further forward, we will continue to drive profitable top-line growth by focusing on growing our categories supported by ongoing cost savings from reducing complexity. At the right time, we will address our capital structure – from a position of growing strength given the delivery of our turnaround plan and the performance of our Power Brands. I am excited by the potential offered by Premier Foods in the longer term.

Premier Foods is trading up around six to seven per cent this morning.