Market shifts hit pie maker's bottom line
The downturn in the supermarket channel, fuelled by intense competition between leading brands - led by discounting from Sara Lee - and the growing popularity of private-label foods, has led Patties Foods to forecast a slightly weaker profit for the full year.
The poorer first-half result was also driven by disruptions to its manufacturing due to the installation of a new robotic packaging system and a charge of nearly $1 million relating to non-recurring bad debt.
Patties Foods, which owns a portfolio of brands, including the iconic Four'n Twenty, Herbert Adams and Nanna's, has also slashed its interim dividend by nearly 16 per cent. It will look for new growth opportunities this year to bolster its margins, including a greater focus on exports and a new range of mid-priced frozen desserts to win back supermarket customers.
"The area where we are having the most impact on margin is our frozen fruit business," Patties Foods managing director Greg Bourke said. "It is growing in the value end - increased value products rather than premium branded products."
"There is a change of mix going towards private label and also to the value range."
Mr Bourke said the company was still selling the same amount of product into supermarkets but there was a shift from its premium Creative Gourmet brand to cheaper private-label foods, which it also sold into Coles but that earned slimmer margins.
"People are buying on price," Mr Bourke said.
Patties Foods posted a 16.5 per cent slide in its interim half-year profit, which fell to $9.1 million as revenue rose 5.1 per cent to $125.5 million. The interim dividend was cut to 3.2¢ a share, down from 3.8¢, and is payable on April 12.
The convenience and petrol station channel was growing by 5 per cent a year as a category, but Patties Foods was beating that with about 30 per cent growth through its range of pies and other heated meals.
"That's due to contract wins and growth of our Four'n Twenty brand."
The company last year won a supply contract with BP.
Mr Bourke said Patties Foods would continue to invest in its strategic growth initiatives, particularly the development of new channels and regions, and keep a tight rein on costs.
Based on current trading conditions, Patties Foods expects net profit in the second half to be at or above the profit for the previous corresponding period. Shares in Patties Foods fell 13.5¢ to $1.565.
Frequently Asked Questions about this Article…
Patties Foods' interim profit fell 16.5% mainly because supermarket shoppers shifted to lower-priced packaged desserts and private-label products, which reduced margins. The result was also affected by intense discounting from competitors such as Sara Lee, manufacturing disruptions while installing a new robotic packaging system, and a nearly $1 million non-recurring bad debt charge.
For the half, Patties Foods reported revenue of $125.5 million (up 5.1%) and a net profit of $9.1 million (down 16.5%). The company cut its interim dividend to 3.2 cents a share, down from 3.8 cents, with the dividend payable on April 12.
Competition in supermarkets, including discounting by major brands and the rising popularity of private-label value ranges, shifted sales away from Patties' premium Creative Gourmet products toward cheaper private-label lines (some sold into Coles). That change in mix lowered selling margins because private-label and value products earn slimmer margins than premium branded goods.
Yes. The convenience and petrol station channel is growing about 5% a year as a category, and Patties Foods has been outpacing that with roughly 30% growth through its pies and heated meals (notably the Four'n Twenty brand). The company also won a supply contract with BP last year, helping that channel's performance.
Two key one-off issues were cited: production disruption during the installation of a new robotic packaging system, and a nearly $1 million non-recurring bad debt charge, both of which weighed on first-half profitability.
Patties Foods plans to pursue growth opportunities including a greater focus on exports and launching a new range of mid-priced frozen desserts aimed at winning back supermarket customers. Management also says it will keep tight control on costs and invest in developing new channels and regions.
Patties Foods has forecast a slightly weaker profit for the full year due to current supermarket trading conditions, but it expects second-half net profit to be at or above the profit for the previous corresponding period based on current trading.
Following the results, Patties Foods shares fell by 13.5 cents to $1.565, reflecting investor reaction to the profit decline, dividend cut and the near-term challenges described by management.
Call 1300 880 160
Start a chat
Schedule a call
