Associated British Foods shares were up 1.1% to 1,627p in early morning trading on Monday, after the group announced a Q3 revenue growth of 32% to £4 billion as a result of improved trading conditions post-Covid and higher prices offsetting inflation expenses in its Q3 trading update.
Associated British Foods confirmed a 10% revenue increase in its food sector to £2.3 billion, on the back of ongoing price actions to date in order to recover input cost inflation and increases in volume ingredients.
The group noted a 4% climb in grocery revenue to £932 million year-on-year, with sales benefiting from price rises earlier this year and continued pricing action across Q3, and sugar revenue rose 7% to £457 million against the previous year, with sugar demand expected to be in excess of production for FY 2021-2022 and production only slightly higher than last year with a lower crop area offset by a recovery in yields to more normal levels.
The producer highlighted a 10% increase in agriculture sales to £441 million, with higher selling prices serving to offset climbing commodity and energy costs, driving profitability with FY 2021-2022 profits expected to fall broadly in line with FY 2020-2021.
Meanwhile, Associated British Foods confirmed a 24% rise in ingredients revenue to £489 million, with an 81% spike in retail revenue to £1.7 billion linked to all Primark stores reopening over the term compared to last year, when the bulk of stores were closed for business.
The company said Primark was currently on track to deliver a FY adjusted operating profit margin of approximately 10%.
Primark is also preparing to launch its UK trial of Click & Collect services for children’s products in up to 25 stores in the Northwest and with a wider range of products to hit demand. The retailer aims to drive higher footfall and incremental sales in stores and build on enhanced digital capability.
“Inflationary concerns were noticeably absent from Primark owner Associated British Foods’ third quarter results,” said Hargreaves Lansdown equity analyst Laura Hoy.
“The group’s pushing ahead with its digital expansion, trialing a new click-and-collect service in the UK and management sees full year operating margins recovering to around 10% as expected.”
“This was a departure from the cautious note that CEO George Weston struck at the half-year, when he warned about the impact of inflationary headwinds on margins.”
The rising prices appear to have boosted Associated British Foods’ trading over Q3, however as the cost of living crisis bites and inflation speeds towards 11% in autumn, the firm might only get away with hiking its prices for so long before customers stop ringing up new clothes at the tills.
“Management said it would be forced to raise prices on its autumn and winter collections back in April. But bikinis and flip flops are still at the top of the shopping list for holiday-obsessed consumers right now,” said Hoy.
“So the impact of these price hikes on volumes is yet to be determined. The group’s in a good position as we head into tougher economic conditions, with its lower-priced items more appealing to cash-strapped consumers, but a slowdown in consumer spending is sure to hit the entirety of the sector.”
Associated British Foods confirmed its trading was in line with management expectations and stated its outlook for FY 2021-2022 remained unchanged.
