Pioneer Foods feels heat of tight marketComment on this story
Johannesburg - Overall domestic volumes for the four months to January were flat on muted consumer spending and significant competition in certain categories, Pioneer Foods said on Friday.
Revenue rose by 8.1 percent, excluding its unbundled poultry division, Quantum Foods, the food maker said in its trading update. It owns brands such as White Star super maize meal, Bokomo cereal products and Ceres beverages.
Including Quantum Foods, Pioneer recorded a 6.9 percent increase in revenue, down from 12 percent in the previous corresponding period. Pioneer announced its intention to unbundle Quantum Foods in September as a result of challenges in the broiler industry.
Export volumes, in particular fruit, maintained good momentum. “Significant and continued focus on cost reduction and efficiencies has had a positive effect on performance to date,” the company said.
The value enhancement initiative started in the previous year was beginning to gain momentum.
An analyst at Cratos Wealth, Ron Klipin, said although the update was not below the market’s expectation, it was understandable as trading conditions remained tough. “It is a difficult time. Input costs are rising and it is also not possible to pass on costs to consumers with disposable income under pressure.”
He said staple food prices were likely to rise further on the weak rand, especially of wheat and maize, which were based on Chicago exchange prices. For the longer-term perspective, the new chief executive, Phil Roux, would focus on value-added brands, but it would take time.
“Generally, the food market is in a critical place and we have seen this from Tiger Brands. Both companies are in a similar space,” Klipin said.
Pioneer Foods said earnings at the half-year were likely to be affected by these factors and the low performance base of the corresponding period.
“The outlook for the remainder of the current financial year is particularly challenging given the inflationary pressures facing consumers at present.”
It said this could potentially translate to volume pressure for the group, compounded by rising input costs and rand weakness. The share fell 1.4 percent to R81.85 on Friday. - Business Report