Hilton Food Group hit by consumer spending slowdown

As the cost of living increases, so do reports of consumers cutting back on their consumption of meat and poultry. It should therefore come as no surprise that meat-packing company Hilton Food Group (HFG) has predicted that profits for this financial year will fall below management’s previously stated expectations. 

Markets reacted negatively to the board’s conclusion, with the shares falling nearly 30 per cent on the day of the company’s half-year results announcement. Although revenue increased in the first half of the year – partially due to higher sales volumes – management also attributed the uptick to “significant raw material price inflation”. 

Inflation is also to blame for a fall in operating margins from 2.3 per cent to 2 per cent. After announcing its largest ever full-year dividend in April, Hilton has taken the decision to cut its half-year dividend by 13 per cent. 

In the past year, the company has acquired smoked salmon producer Foppen, meat supplier Fairfax Meadow and vegetarian protein producer Dalco. While management says the new additions provide Hilton with a “strong platform” for medium-term growth, they leave it in a weaker cash position for the time being. 

Net cash generated from operations of £8.5mn (down from £28.3mn in 2021) was hit by the build-up of working capital following the acquisitions. Year-on-year capital expenditure, on the other hand, fell by just £1mn to £26mn as Hilton continued to invest in technology and automation to make its processes more efficient. 

When it reported full-year figures, the company’s Asia Pacific division was a standout in terms of both revenue growth (71 per cent) and volume growth (33 per cent). Progress slowed in the first half of 2022, however, with an 8 per cent uptick in sales volumes translating to a 30 per cent rise in turnover.

With almost 60 per cent of revenue coming from Europe – and the region’s cost of living crisis showing little sign of abating – Hilton may have to prepare for muted growth in the short term.

“While we benefit from the strength of our diversified business model and continue to grow volumes internationally, Hilton has not been immune from the impact of macroeconomic headwinds,” management said in a statement. Bulls may argue that markets overreacted to the company’s full-year profit warning. But given the highly uncertain outlook for growth, it may be wisest to invest once recessionary dust has settled. Hold.

Last IC view: Buy, 1,212p, 6 April 2022