Johannesburg - Pioneer Food Group shares sank by the most in seven years as a surge in the dividend payout by South Africa’s second-largest food producer was outweighed by its warning that drought and currency weakness in the country would crimp its margins.
The maker of Weetbix cereal and Liqui Fruit fell as much as 10 percent, the most since October 2008, and was down 8.9 percent at R164.91 by 11:04 a.m. in Johannesburg. It raised its final dividend 52 percent to R2.37 ($0.17) a share, pushing up the total for the year ended September 30 by half to R3.32, the company said in a statement Tuesday.
Profits during the fiscal year contrasted with a downbeat outlook from the company, with earnings excluding one-time items up 16 percent at R1.2 billion, or R6.65 a share.
The stock “was priced for perfection” before the earnings, Sumil Seeraj, an analyst at Standard Bank Group, said at a company investor presentation in Johannesburg.
Pioneer has boosted earnings even as South Africa’s worst drought since 1992 pushed up local prices for grains it uses as raw materials such as corn by more than 50 percent this year. The drought has also dragged on already sluggish growth in the continent’s second-largest economy, which is expanding at its slowest pace since a recession in 2009.
“The low growth and competitive environment, exacerbated by cost push due to rand weakness and drought conditions, will place significant pressure on volumes and margins,” Paarl, Western Cape-based Pioneer said in its statement.
The rand has weakened 18 percent against the dollar this year, making it 2015’s worst performer among 16 major currencies tracked by Bloomberg after Brazil’s real.
Pioneer also faces a fight for market share in the bakeries business from Tiger Brands Ltd., South Africa’s largest food producer, Standard Bank’s Seeraj said.
Volume growth for bread sales slowed to 10 percent for the full year, from 13 percent in the six months through March, according to a company presentation.
BLOOMBERG