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Associated British Foods has lifted its profit forecasts for the year as inflation becomes less volatile and commodity costs start to decline.
The group, which owns the Blue Dragon, Twinings and Kingsmill grocery brands, as well as Primark, said in a pre-close first-half trading update this morning that the recovery of significant inflation in inputs costs remained a priority in the second half of the financial year.
ABF now expects adjusted operating profits for the year to be broadly in line with the previous financial year, with the bottom line in the food divisions to be “modestly” ahead year on year. Annual profits in the grocery arm are expected to be flat as pricing starts to work through to supermarket shelves, and profits at the ingredients business will be “well ahead”.
In the first half, total sales at ABF are 16% up year on year once currency movements have been stripped out, but the group warned it continued to face significant cost pressures.
However, it said consumer spending had proven to be more resilient in the half than expected, with Primark sales 16% up at £4.2bn.
Group adjusted operating profits in the first half are expected to be broadly in line with the same period a year ago.
Grocery revenues have increased 10% in the half as price increases continued to filter through, with further pricing action underway.
However, ABF said adjusted operating profits in the division were expected to be lower than a year ago as input cost inflation ran ahead of price increases, putting margins under ongoing pressure.
Shares in the group jumped 1.5% to 1,975p as markets opened this morning to news of a profits upgrade.
Morning update
Logistics group DX has reported a strong first-half performance, with revenues up 15% to £231.3m and a 31% increase in EBITDA to £25.5m.
The group said there were higher contributions to the top line from both the freight and express divisions in the six months to 31 December 2022, driven by new business wins, price increases and strong customer service levels.
CEO Paul Ibbetson said: “The group performed strongly, with both divisions contributing higher revenue and expanded margins. Trading was helped by the easing of customer supply chain and labour market pressures.”
DX declared an interim dividend of 0.5p a share thanks to the performance. It is the first time the company has paid a dividend in six years.
Ibbetson added that the dividend reflected the success of the group’s turnaround and growth plans, which commenced in 2018, as well as confidence in future prospects.
“Trading to date in the second half, traditionally our stronger period, is in line with expectations, and we believe that despite economic headwinds, the group is well-placed to meet its targets for the financial year,” he said.
The FTSE 100 is back on the front foot this morning, rising 0.8% to 7,942.2pts.
Shares in DX Group soared 4.8% to 29.6p as investors reacted positively to its interims.
Other risers this morning include McBride, up 5.2% to 24.2p, Naked Wines, up 4.9% to 111.4p, Science in Sport, up 2.7% to 15.4p, and Just Eat Takeaway, up 2% to 1,791.8p.
Early fallers include HelloFresh, down 2.2% to €20.76, SSP Group, down 0.6% to 255.1p, and Deliveroo, down 0.5% to 80.5p.
This week in the City
It’s a big week for grocery and fmcg results on the London Stock Exchange.
Ocado gets the ball rolling tomorrow with its full-year results, with investors watching keenly to see what guidance the under-pressure online operation will give for 2023. Kantar will also provide the latest grocery market share data tomorrow. Wholesaler Kitwave is set to report its full-year results as well, with interims from own-label household goods manufacturer McBride.
Reckitt Benckiser is the latest multinational to file Q4 and full-year figures on Wednesday, while Vimto owner Nichols also publishes annual results. The BRC issues its latest shop price index, and there are also quarterly numbers from Just Eat Takeaway and Beiersdorf. The quarterly FTSE index review is also announced on Wednesday evening.
Consumer health giant Haleon puts out its preliminaries on Thursday morning, with interims also due from Hotel Chocolat.
AB InBev closes out the week with its quarterly end-of-year results on Friday.
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