Cranswick failed to bring home the bacon in the third quarter. Total sales fell 2 per cent against a double-digit performance during the same period the previous year. This was partially due to a 7 per cent decline in the price of pork, along with an estimated 3 per cent decline in the volume of products sold. Management called it a “challenging commercial landscape” with retailers pushing promotional activity. This, together with spending on a new poultry facility in Suffolk, means that the group’s operating margin is expected to decline in 2019.
Beyond the 2019 financial year, the picture may improve. The £5m spent on the Suffolk poultry facility is a one-off cost, and will boost poultry products. Cranswick has confirmed a long-term supply agreement with Wm Morrison supermarket that will make use of the Suffolk site, as well as cooked products from the Hull facility.
The update prompted analysts at Shore Capital to cut pre-tax profit forecasts for 2019 and 2020 by 3 per cent and 15 per cent, respectively. But these analysts expect a “material rebound” in 2021 thanks to the removal of one-off costs and the full-year impact of trading from the poultry facility, with forecast pre-tax profits of £100m and EPS of 157p – representing a return to growth of 18 per cent. The competitive pressure for pork products could continue, but this should be specific to pork as demand for poultry protein continues to grow. Management is looking to mitigate rising costs, primarily from labour, but analysts don’t expect this to be fully offset.
