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Associated British Foods – Sales Jump Across The Board

Associated British Foods plc (LON:ABF)’s revenues rose 16% to £6.7bn during the 16 weeks ended 7 January, ignoring the effects of exchange rates. This…

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This article was originally published by Value Walk

Associated British Foods plc (LON:ABF)’s revenues rose 16% to £6.7bn during the 16 weeks ended 7 January, ignoring the effects of exchange rates. This reflected growth in all business segments, including 15% growth in retail sales and 17% growth in total Food sales.

On a like-for-like basis, Primark sales were 11% ahead of the same period last year, following a “very strong” Christmas period. The group said higher unit volumes, sales prices and a more normal rate of supported this growth. As expected, underlying operating margins were lower than last year due to inflation in the cost of bought-in goods.

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In the Sugar segment, UK full-year production expectations have been lowered from previous forecasts of 0.9m tonnes to 0.74m tonnes. This reflects lower beet sugar yields following recent adverse weather conditions. As such, profitability at British sugar is now expected to be lower than previously expected.

Looking forward, ABF still expects significant growth in full year sales, but sees its underlying operating profits and earnings per share coming in lower than last year thanks to significant cost pressures.

The shares were unmoved following the announcement.

Associated British Foods’ Earnings

Aarin Chiekrie, Equity Analyst at Hargreaves Lansdown:

“ABF saw sales jump across the board. The value fashion giant Primark saw record sales towards the end of 2022, as cash-strapped customers flocked to the budget fashion store to escape cost-of-living pressures.

 

One of Associated British Foods’ main strengths is its diversified business portfolio, which includes many well-known food brands such as Kingsmill, Ryvita and Twinings. This diversification helps to mitigate risk and ensures that the company isn’t overly reliant on any one particular product. This bore fruit as total food sales also spiked towards the back end of last year.

Despite being well positioned to deal with consumers’ shrinking budgets, ABF is not without its challenges. One of the main challenges is significant cost inflation. While increased sales prices have helped combat this, price rises risk alienating the value-chain’s core customer base. This means price hikes have been capped so far, resulting in margins coming under pressure.

Overall, we’re cautiously optimistic about ABF’s outlook. In the short-term, jittery customers and inflationary pressures are likely to keep a lid on profits. But longer term, with inflation easing and commodity costs normalising, we think there’s plenty of room for ABF to restore margins. With the group currently trading well below its long-term average, there could be an opportunity for investors willing to ride out the near-term turbulence.

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