Tate & Lyle PLC (LON:TATE) shares slipped in early trading Thursday after an update saying adjusted pre-tax profits in the last three months of 2018 were “ahead of the comparative period” was overshadowed by a full year outlook that estimated earnings per share growth would be at the "lower end" of forecasts.
In an update for the period ended 31 December, the FTSE 250 ingredients group said its food & beverage solutions arm had “performed well” with volume growth in line with the first half of the year as momentum continued in North America and the Asia Pacific.
READ: Tate & Lyle rises on solid first-half results
Adjusted operating profit for the division was higher than the same period a year ago, while the company added that it was focusing on “mix improvement” in its European, Middle East, and African markets.
Volume was also higher in the company’s sucralose business as it benefited from a production optimisation programme at the firm’s facility in McIntosh, Alabama, with adjusted operating profits “slightly ahead” of the comparative.
The only segment to see lower profits in the period was the group’s primary products division, which saw lower adjusted operating profits compared to the year-ago period due to weaker demand in North American sweeteners, which in turn led to lower volumes.
However, Tate said the 2019 calendar year bulk sweetener pricing round was nearing completion with margins “broadly in line with the prior year”.
For the full year ending 31 March 2019, the company said its guidance remained for growth in earnings per share in a “mid-single digit range, albeit towards the lower end” due to energy and transport cost inflation in North America and a “strong commodities performance” in the 2018 fiscal year.
In a note to clients, analysts at broker Liberum reiterated their ‘Buy’ rating and 900p price target on the stock, saying the company’s focus on “lifting returns, cash flow and margins, especially in Food & Beverage Solutions” was paying off.
The broker added that is expected the firm to show “solid” earnings (EBIT) margin expansion over 2019 and 2020.
“In our view, the market underestimates the scope of Tate's margin potential, which could drive strong upside risk to both earnings and the share price.”
In early trading Thursday, Tate & Lyle shares were down 0.6% at 672p.
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