July 27, 2011
Cranswick profit drops 12% amid cost hikes
Cranswick, a pork meat and sausage specialist firm, has plunged nearly 12% after the company issued a profit warning.
Rising raw material prices and a depressed UK consumer market - even bacon sandwich sales cannot escape the dread hand of the coalition's austerity drive - mean Cranswick now expects its full year result to be below its previous expectations. And it is only the first quarter.
The company said like-for-like sales for the three months to the end of June were up 5%, but overall sales were down 2% reflecting the transfer of its cooked meat business to Farmers Boy, a joint venture with Morrison Supermarkets. But it is the raw material costs which are really hurting, with the company unable to push through price rises to its customers immediately. Charles Hall at Peel Hunt reduced his recommendation from buy to hold and cut his price target from 900p to 750p following the figures. He said.
Sales growth has been in line with expectations. However, the company is finding it harder than expected to pass on price increases because of the tough consumer environment and retailers' reluctance to allow price increases. The company had hoped that the sharp increase in pigmeat prices (+15%) would make it easier to push through material increases; however, this has not turned out to be the case.
Clearly this is disappointing and there will be nervousness on margins going forward.
Cranswick shares are currently down 86.5p at 653, making it the biggest faller in the FTSE 250.
