Patties' shrinking pie

Frozen foods company Patties Foods (PFL) has lost its sweet tooth as weakness in its desserts products contribute to a sharp drop in full-year profit.

Management had to write down $11.8 million in its frozen fruit business as the category struggled with stiff competition from private label offerings and increased discounts at supermarkets.

The company has also been plagued by problems with its newly installed robotic packaging system and management may dump its frozen fruit business as it embarks on a “strategic review” for the division.

Net profit plunged 75.4% to $4.8 million even as sales inched up 3.8% to $244.8 million for the year ended June 30, 2013, and the news sent the stock falling 2.8% this morning to $1.41 before it recovered to trade flat at $1.45.

While the weak profit is disconcerting, Patties underlying performance met expectations. The company posted a 10.6% drop in underlying earnings before interest tax, depreciation and amortisation (EBITDA) to $34.6 million thanks to ongoing growth in its savoury pie division, which includes well-known brands like Four’n Twenty and Patties.

Management is also counting on a new brand launch, Herbert Adams, to drive further growth. The new brand will appeal to growing demand for gourmet pies.

Patties is also looking to a new range of frozen doughnut desserts under its Nana’s brand to help turnaround the performance of its desserts business.

The stock, which is part of the Uncapped 100, has fallen around 11% over the past year.