Exceedingly good result: Premier Foods cake sales grow every quarter

Announcing its preliminary results for the fiscal year ending April 2 2016, the company reported sales from its Sweet Treats division – which includes Mr Kipling and Cadbury cakes - up 3.4% year on year to £223.1m ($323.5m), compared with a 0.6% increase in overall group sales to £771.7m ($1.1bn). Overall adjusted profit before tax rose 3.5% to £86.1m ($124.8m).

The results are being announced five weeks after US flavors giant McCormick & Co abandoned its plans to take over Premier Foods. On April 13 it announced that, following a due diligence review, it would not be making a formal offer for the manufacturer.

In the final quarter of the year, sales of Sweet Treats rose 3.8% year on year versus a 1.4% increase in overall sales.

Sweet Treat sales have increased every quarter in the past 12 months. Mr Kipling – Britain’s biggest cake brand - had grown in six consecutive quarters but sales were down year on year in Q4, which Premier attributed to an “exceptionally strong​” comparative quarter a year ago.

Cadbury selling like Hot Cakes

Sales of Cadbury cakes – produced under license from Mondelēz International – had shown double-digit value and volume growth in the year and the fourth quarter. Premier said new products such as Amaze Bites and Hot Cakes had provided nearly half of the brand's growth in the year, adding the core range has also performed “very well​”. The first TV commercials for Cadbury cake in eight years aired during the year, and this will be repeated in the coming year.

Both Mr Kipling and Cadbury have been instrumental in driving category growth, reported the manufacturer, with new product launches supporting the group's premiumisation strategy.

Non-branded cakes sales, including own-label products produced for retailers, rose 10% year on year to £44.6m ($64.6m) versus a 1.9% increase in branded cakes to £178.5m ($258.7m).

185 million mince pies sold

Over half the non-branded sales were made in the third quarter of the year, with performance boosted by mince pie contract gains in the multiple retail and discounter channels. Premier sold 185 million mince pies, up 8% year on year. Other contract wins included fruit pies.

Premier also reported the division had achieved its target of delivering double-digit divisional contribution margins in the year, up from 8.3% to 11.2%. This reflected increased volumes, efficiency benefits from capital projects and improved product profitability mix.

Deflationary environment

The company described the wider UK market as a “consistently deflationary environment​”, reporting that UK food deflation had remained “broadly constant​” at 1.5% to 2% over the past twelve months.

Premier added that discounters such as Aldi and Lidl had continued to grow, and that it had grown broadly in line.

“This reflects commitments to deliver growth in the discounters channel, principally but not exclusively through our non-branded offering, while dedicated resource has been recruited to realize the opportunities in online through a more focused and tailored approach​,” reported the business.

Category range reviews

With competition fierce in UK retail – and the discounters continuing to take market share from traditional supermarkets – many have been undertaken category reviews.

“In overall terms, the outcome of these reviews is that they have concluded in line with the company's expectations,” said premier. “While the company has lost some slower-selling product codes in some areas, it has also gained increased availability of some higher-selling product codes in other areas​.”

Announcing the results, Premier Foods chief executive officer Gavin Darby said the company’s strategy of investing in brands in bringing innovative products to market was continuing to deliver “very positive results”.

“The Sweet Treats business reported sales growth in every quarter of the year while the International business also displayed excellent progress​,” he added.

International division sales up 15% year on year

Sales from Premier’s International division rose 15% year on year, or 18% excluding the impact of adverse foreign currency movements, reported the business. New listings for products including Mr Kipling and Cadbury cakes had contributed to this, with sales from Australian retailers up 47% year on year.

US sales grew 23%, with the fourth quarter particularly strong, partly a result of Premier’s Sharwood's brand increasing its share in Indian cooking sauces by +2.2 percentage points.

As previously reported by this site, the company also undertook a new trial of Mr. Kipling Apple, Fruit and Mississippi Mud Pies across 250 stores of a major US retailer in the third quarter of the year, delivering some “encouraging results​”.

Premier has increased the size of its international team as it looks to grow its overseas business, now employing 28 people compared with nine a year ago.