Premier Foods issues profit warning

Shares in Premier Foods plunged by 22% yesterday after the food group issued a profit warning - and blamed it on soaring commodity costs, a spat with Tesco and the loss of a pie making contract for Marks & Spencers.

Premier said that trading profit over the six months to June 25 will be between £65m and £70m, compared with £94m over the same period last year.

The £94m figure includes a £10m credit arising from reduced liabilities from closing pension schemes, the company said.

It said commodity costs had increased by 14% year-on-year over the period, adding £150m to the company’s cost base. Also, Premier said that a “major” customer - known to be Tesco - delisted a “significant” number of products after it increased its prices. Although the issue has been resolved it understood the episode cost it £10m.

The company also labelled the loss of the pie contract at its Brookes Avana arm as “significant”.

Premier said: “Given the state of the economy and pressure on consumer spending, we expect these slow market conditions to improve on the first half but to continue to be down year on year in the second half.

“We also expect promotional intensity to increase year on year.  Nevertheless, we have largely completed our repricing and have succeeded in obtaining a strong promotional programme which should help us resume taking market share.”

Shares in the food manufacturer, which makes Hovis Bread and Mr Kipling cakes, ended the day at 19.02p.