Premier Foods cuts sales outlook on tough UK grocery market

Premier Foods, the British maker of Mr Kipling cakes and Bisto gravy, cut its forecasts for annual sales growth at its key brands due to the country's "subdued" grocery market.

The company on Wednesday said, however, its outlook for full-year profit was unchanged as its cost-cutting programme would offset the lower sales.

Premier Foods had expected to grow sales of its “power brands” which includes Batchelors soup products, Hovis bread and Ambrosia custard treats by 2 to 3 per cent over 2014, but reassessed its forecast after second quarter sales fell behind expectations.

The retailers who sell Premier Foods products are facing the slowest rate of growth in Britain's grocery market since 2005, illustrated by tough trading at UK supermarkets like Tesco and Morrisons.

“While Power Brands sales for the second quarter are anticipated to be negative and below the company’s expectations due to subdued grocery markets, profit expectations for the twelve months to 31 December 2014 remain unchanged,” the company said in a statement.

Currently analysts expect Premier Foods to post pretax profit of £82 million for 2014 according to Thomson Reuters data.

After a costly acquisition spree, Premier Foods has spent the past few years selling assets, reshaping its business and cutting costs to help reduce debt, pinning its prospects on growing a streamlined group of high-margin grocery brands.

In March, it undertook a £1.13 billion refinancing package designed to reduce its borrowings, and also struck a new pensions agreement.

Premier Foods also on Wednesday said it planned to develop a stand-alone joint venture to process and pack powdered products at one of its facilities in a deal which should improve efficiency, and that its logistics business had made progress with cutting costs.

Shares in Premier Foods, which have risen 12 per cent in the last month, closed at 57.50 pence, valuing the company at £474 million.

Reuters