Associated British Foods plc (LON:ABF)shares jumped higher today after the food to retail conglomerate said its underlying operating performance during the third quarter was ahead of its forecast as a result of a stronger profit performance from its discount clothing stores chain Primark, which has marginally improved the full-year outlook.
In a trading update for the 40 weeks to 24 June 2017, the FTSE 100-listed firm said group revenue from continuing businesses was 10% ahead of the same period last year at constant currency and 20% ahead at actual exchange rates.
READ: AB Foods sees profit beat forecasts driven by higher sugar prices and Primark growth
In a note to clients, Shore Capital analyst, Darren Shirley, said: “Another positive update from ABF, and we reiterate our BUY recommendation, with scope for a 2-3% upgrade to our FY2017 EPS forecast of 121.4p. With the upgrade driven by Primark, we expect this to have an even stronger positive impact on the stock today.”
In early morning trading, AB Foods shares topped the FTSE 100 leaders board, adding nearly 4%, or 113p at 3,035p.
In its statment, the group said overall group revenue growth for the third quarter was up 13% at constant currency and 20% at actual exchange rates.
AB Foods said it continues to expect to report good growth in full-year adjusted operating profit and adjusted earnings per share for the group.
The firm said sales at Primark in the year to date were 13% ahead of last year at constant currency driven by increased retail selling space and growth in like-for-like sales.
At actual exchange rates, it added, Primark’s sales continued to benefit from sterling weakness and are 21% ahead in the year to date.
Primark particularly strong in the lead up to Easter
The group said third quarter trading at Primark was particularly strong in the lead up to Easter, benefiting from comparison with results last year that were affected by poor weather and an earlier Easter holiday.
As a consequence, like-for-like sales in this period were better than the first half of the year.
It said Primark performed particularly well in the UK where year to date sales were 9% ahead of last year and it continues to increase its share of the total clothing market.
AB Foods noted that Primark’s first half operating profit margin of 10% declined from 11.7% in the first half last year, reflecting the strength of the US dollar on input costs, however, with the benefit of improved input margin mitigation and lower markdowns, it now expects the full year margin and the rate of decline to be in line with the first half.
Grocery businesses achieved further revenue growth
Aside from Primark, the firm said its grocery businesses achieved further revenue growth in the quarter with continued progress for Twinings Ovaltine and George Weston Foods in Australia.
However, in the UK, the bread market has remained very competitive which, combined with inflationary cost pressures in bakery, has had a negative impact on Grocery margins.
It added that revenue growth for AB Sugar remained strong in the third quarter with the continuing benefit of higher prices and increased production from Illovo in Africa.
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