Northern Foods slashes profit forecast

By Anita Awbi

- Last updated on GMT

Related tags Northern foods Cost Marketing

UK-based Northern Foods has issued a profit warning after failing
to offset rising production costs with necessary price hikes.

The food processor - which supplies Tesco and other big name retailers with frozen, chilled and ambient foods - issued a trading update early to counteract the recent rise in its share price.

This follows news that Unilever, another leading player in the frozen and chilled food sector, posted disappointing Q3 results in the face of rising fuel costs and a drop in demand for frozen foods.

On Friday Northern Foods, famous for frozen Goodfellas pizzas and Fox's biscuits, announced that last quarter's continuing operating margin was 3 per cent, in line with the first half of the year but down on last year.

And now the group expects full-year profit before tax to fall below 2004's level - but did not say by how much.

Rising energy and production costs, and a competitive home market, were cited as the main instigators of the company's poor performance.

Yet its failure to address these issues and raise prices has forced the firm to alert the City that its annual profit expectation will take a hit. Analysts are predicting a 10-12 per cent drop on last year's £62.2 million, taking it down to £60m or less.

"As previously indicated, we have experienced sharply higher costs, particularly energy,"​ the company said.

"We have secured some increased in selling prices; however it is taking longer than expected to complete this process."

But a biscuit price war in the run-up to Christmas increased promotional expenditure and prevented the implementation of planned price hikes, though.Q4 will see a return to the price increase policy that the firm hopes will improve margins.

The company is part way through a three-year 'Get Fit' efficiency drive in a bid to boost profits, after a succession of post-Christmas profit warning announcements over the past five years.

CEO Pat O'Driscoll introduced a raft of new measures to streamline the under-performing chilled food sector last year, axing two factories, 30 management posts and 1,000 other jobs.

But the ailing division suffered a set back last December when the Melton Mowbray district, famous for its pork pies, was granted EU protected geographical indication status, effectively preventing Northern Foods manufacturing the pork pies in factories outside the designated area.

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