Associated British Foods' (ABF) shares took a nearly 5% downturn around midday on Thursday in London, primarily due to forecasts of a weaker fiscal second half. This anticipated decline comes as European sugar prices plummet and the UK grapples with unseasonable weather conditions. Analysts from Bernstein commented on the market's reaction, labeling the Thursday trading update as "bad news".
They noted that the overall weakness in topline performance is likely attributed more to seasonality rather than any foundational economic issues. "On balance, the news is not great. Primark's like-for-like sales were weak in the second half, landing at -0.5%, translating to a significant miss of 250 basis points.
Furthermore, UK like-for-like sales decreased by 2%, while the company observed a degradation in market share within the UK. Additionally, the profitability of the sugar segment has been notably dialed down for fiscal year 2025—more than we originally anticipated. We believe this weakness will not sit well with the market," the analysts added.
In contrast to the overall dismal forecast, George Weston, the Chief Executive Officer of the British food, ingredients, and retail group, expressed a more optimistic view. In a statement, he emphasized that the group achieved "a significant improvement in profitability and excellent cash generation" in the latter portion of its fiscal year ending on September 14.
Looking ahead, the fiscal second-half revenue and sales estimates depict a 4% growth projection for retail chain Primark and a 3% increase in the grocery segment, albeit a slight decline is anticipated for the agriculture sector. The company has also indicated that its Ingredients division is likely to achieve notable profitability, while the Sugar segment is projected to yield an adjusted operating profit of 200 million pounds sterling, which, although lower than expected, represents an annual increase.
Amid these challenging market dynamics, the firm is banking on strong cash generation for fiscal year 2024 to bolster shareholder returns. They have unveiled plans to extend their 500 million-pound buyback program, which initially closed in August, by committing to repurchase an additional 100 million pounds worth of shares.
This buyback initiative is projected to conclude around the forthcoming release of their annual report on November 5. As for fiscal year 2025, the company anticipates making additional strides in its strategic initiatives. Despite the challenges posed to the sugar segment from decreased pricing, improvements are expected within both the Agriculture and Ingredients divisions.
Furthermore, Primark is projected to generate satisfactory sales growth, backed by a hike in marketing investments aimed at invigorating the sales momentum of the Grocery sector..