Goodman Fielder cuts FY guidance

Food group accelerates cost-cutting measures, flags weaker full-year earnings.

Goodman Fielder (GFF) will accelerate its cost-cutting program and has lowered its full-year guidance on the back of a deterioration of market conditions since its half-year results.

The food company said the deterioration has impacted third-quarter performance and as a result it now expects normalised earnings before interest and taxation (EBIT) for fiscal 2014  to be between 10% and 15% below the current analysts’ consensus of approximately $180 million.

At its interim results Goodman Fielder flagged $25m in additional cost savings that would be achieved by fiscal 2016.

However, the weakening market conditions have prompted the company to accelerate these cost saving initiatives, primarily through headcount reduction in the fourth quarter of fiscal 2014.

Goodman Fielder now expects to achieve the additional savings by fiscal 2015.

As a result of the lowered earnings guidance, Goodman Fielder expects its net debt position at June 30 will not be reduced as previously anticipated. However, the group says its financial position remains strong and the company continues to operate comfortably within its debt covenants.

Third-quarter earnings in group's grocery division were lower than expected due to increased competition impacting price and volume across the portfolio, with fourth-quarter earnings expected to be further impacted by difficult trading conditions and lower customer inventory levels.

In its baking business, Goodman Fielder noted that an increase in volumes in the third quarter was offset by a lower-than-expected net average selling price.

Further, around $10m to $15m of a total of around $32m of cost savings set to be achieved in fiscal 2014, have been delayed until fiscal 2015.

"Continuing reliability issues across the manufacturing and supply chain network have required the company to continue to invest to maintain customer service metrics which is impacting earnings in the short term," the group said.

Short-term earnings from Goodman Fielder's New Zealand Dairy business are set to be impacted by a further increase in the farmgate milk price. The group said it had notified
customers of price increases, but noted there was  a time lag between the increase in the raw milk price and cost recovery.

Earnings expectations in the Asia Pacific business remain largely unchanged.