Associated British Foods predicts decline in operating profit

Associated British Foods predicted operating profit will decline this year as the strong performance of its Penneys/Primark budget-fashion chain is offset by its struggling sugar business.

Primark, which is about to move into the US, boosted revenue by more than analysts anticipated in the past four months as a strong Christmas made up for slowing sales during a warm fall. AB Foods’ shares rose 3 per cent to 3,128 pence at 8.18am in London.

The company has come to rely on Penneys and Primark for sales growth amid declining earnings at its other main business of sugar production.

Revenue at Primark rose 12 per cent in the 16 weeks ended January 3, beating the median estimate of nine analysts compiled by Bloomberg for growth of 11 per cent.

The popularity of its cut-price fashions has led the chain to expand across Europe in recent years and will see the opening of its first US outlet in Boston near the end of 2015.

Sugar sales declined in both the UK and Spain in the quarter amid falling prices as world supplies outpaced demand, AB Foods said in a statement.

It expects a “further large reduction” in sugar profits this year, though “this will put much of the effect of the structural changes in EU prices, seen over the last three years, behind us” as it sees signs of sugar prices stabilizing.

The fall in group earnings would be mitigated by lower tax and interest charges, it said. AB Foods’ total revenue was 1 per cent in the quarter at actual rates, below the median analyst estimate of 1.4 per cent.

The shares fell 3.1 per cent to 3,035 pence in London yesterday. The stock rose 29 per cent in 2014, after even bigger gains in each of the preceding years.

Bloomberg