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FTSE 350: Shifting sands for food producers and household goods

As with most retailers, the scourge of cost inflation is threatening to eat into food and household goods producers’ profits in 2022
April 28, 2022

The largest company in the sector, Unilever (ULVR), said that input cost inflation had reached “unprecedented” levels of 20 per cent, leading it to predict a 140 to 240 basis point hit to underlying profit margins this year. The maker of Dove said it would put up prices again, (it hiked prices in 2021). Reckitt Benckiser (RKT) has also opened the door to future price rises, having already seen its cost of golds sold rise by £550mn in 2021. But this latest round of increases might be harder to stomach, as Kantar reports that rising living costs are already leading consumers to swap out branded goods for cheaper unbranded substitutes.

Another coronavirus winner, PZ Cussons (PZC), benefited from supercharged sales of its Carex hand gels. The shares have since retreated to more or less their pre-pandemic levels, but margins have continued to grow as the Imperial Leather maker raises prices. Stronger sales in its single-largest market, Nigeria, have so far offset slower European growth.

Premier Foods (PFD), the maker of Mr Kipling cakes and Oxo, is also forestalling a more challenging domestic outlook for consumer goods by growing internationally. After sales of its sugary snacks surged during the pandemic, Premier Foods is now aiming to roll out Mr Kipling into Canada, as well as trialling a US launch in the second half of the year.

Meat-focused Cranswick (CWK) has benefited from the slow but steady return to the office, with cooked poultry becoming popular again for ready-made sandwiches and meals. The group is investing in a new breaded poultry facility in Hull to be finished by the end of 2023, as well as automated pork deboning in Preston. Meanwhile, the UK’s largest sandwich maker, Greencore Group (GNC), has had a less stellar time, with low labour retention reducing its capacity and scuppering its attempt to take advantage of returning demand.

Taking a different approach, Tate and Lyle (TATE) has gone all in on a new plan. After selling a controlling stake in its corn-based sweeteners business to private equity last year, its focus is now on helping food producers to lower the sugar content of their products through its ‘food and beverage solutions’ unit. Analysts at Berenberg have been cheered by the division’s four-year track record of organic growth, and said its use of annual contract pricing for 80 per cent of the business could provide a shield against inflation.

 

NAMEPrice (p)Market cap (£mn)12-month (%)Fwd PEYield (%)Last IC View
Associated British Foods1,65713,114-28.0%122.9Hold, 1,953p, 09 Nov 2022
Cranswick3,5621,894-5.0%172.1Buy, 3,675p, 23 Nov 2021
Greencore Group120631-22.0%132.7Sell, 127p, 30 Nov 2021
Hilton Food Group1,1941,0620.0%192.6Buy, 1,212p, 06 Apr 2022
PZ Cussons203870-23.0%173.0Buy, 195p, 09 Feb 2022
Premier Foods11599619.0%111.3Buy, 110p, 16 Nov 2021
Reckitt Benckiser Group6,16844,093-9.0%212.9Buy, 6,122p, 17 Feb 2022
Tate & Lyle7713,6131.0%182.7Buy, 695p, 04 Nov 2021
Unilever Group3,51589,948-15.0%174.0Hold, 3,747p, 10 Feb 2022
Source: FactSet