Premier Foods shares plunge as Mr Kipling owner issues profit warning

Maker of Bisto gravy blames weaker pound and rising costs for decision to lower full year profit forecast by 10%.

Shares of Premier Foods takes a beating amid weak second quarter sales — They may be exceedingly good cakes but the maker of Mr Kipling lowered its profit expectations for the full year by 10% Reuters

Shares in Premier Foods tumbled over 15% early on Wednesday (18 January), after the owner of Mr Kipling cakes and Bisto gravy issued a profit warning after weaker-than-expected sales in the third quarter of its financial year.

Having already cut its sales forecast in October, the London-listed company slashed its full-year trading profit forecast by 10%, after sales in the three months to 31 December fell 1% year-on-year to £251.4m, while volumes increased 3.4%.

Premier Foods added that not only has the cost of core commodities increased, but the weaker pound has led to ingredients such as sugar being more expensive to buy.

The company added the process of agreeing new supply deals with supermarkets was taking longer than forecast, a problem industry giant Unilever highlighted in October last year when it announced it would lift the price of Marmite.

As a consequence of the pound's sharp decline following the Brexit vote in June last year, the company's costs have increased, leading it to pass the costs onto the consumers by hiking prices in shops.

"Against the backdrop of these headwinds, we are today initiating a new cost saving and efficiency programme which will deliver £10m from 2017/18 with equivalent further savings the following year," said group chief executive Kevin Darby.

"This programme will support the company's twin goals of delivering trading profit and free cash flow while investing in innovation and consumer marketing."