ABF shares drop 6% on sugar outlook cut, H1 misses expectations

Investing.com -- Shares of Associated British Foods (LON:ABF) fell more than 7% on Tuesday after the company posted first-half results that missed analyst expectations and cut its full-year guidance for its sugar division, a move that could prompt downward revisions to full-year consensus forecasts.

The food processing and retail group reported first-half EBIT of £835 million, falling short of consensus estimates of £853 million. 

As per analysts at Jefferies, the 2% shortfall was driven by a sharp year-on-year decline in Sugar profitability, which swung £141 million lower and contributed to a £76 million reduction in group EBIT.

Group revenue for the period came in at £9.51 billion, below analyst expectations of £9.63 billion.

Primark, the company’s flagship retail chain, saw half-year sales rise 1% on a constant currency basis, with like-for-like sales down 2.5%. 

Both figures were weaker than consensus estimates, which had forecast 2% sales growth and a 1.9% decline in like-for-like sales. 

Despite this, Primark delivered a stronger-than-expected EBIT of £540 million, ahead of forecasts for £513.8 million and up from £508 million a year earlier. 

The EBIT margin rose to 12.1%, beating consensus expectations of 11.4% and marking an 80 basis point improvement year over year.

Still, challenges persist. While ABF reiterated guidance for Primark to post low single-digit sales growth in fiscal 2025 and maintained full-year EBIT margin guidance for the unit as flat, the company expects second-half margins to decline year over year. 

Management acknowledged that trading in the U.K. market remains difficult, though it noted “early signs of improvement in recent weeks.”

The most significant concern emerged from the Sugar segment, where ABF now expects an operating loss of up to £40 million for the full year. 

This marks a sharp downgrade from previous guidance of a £50 million to £75 million profit and compares with a consensus forecast of £58 million. 

Jefferies analysts noted that this guidance cut could lead to mid-single-digit downgrades to full-year consensus earnings estimates.

Despite tailwinds from lower costs of goods sold, including easing freight and currency pressures, the downgrade to Sugar and concerns about Primark’s longer-term sales and margin trajectory weighed on investor sentiment. 

The food processing and retailing company recent rally, over 15% in just three weeks, had pushed the stock’s price-to-earnings ratio to around 11 times, a level that Jefferies said still reflects persistent doubts over the sustainability of Primark’s mid-single-digit sales growth algorithm and ability to defend double-digit operating margins.

The interim dividend was maintained at 20.7 pence per share, unchanged from a year earlier.