Falling demand hits Aryzta sales

FALLING demand in Ireland and Britain reduced sales at Aryzta by 8.4%, worse than analyst expectations.

In those two markets sales were off 25% while Goodbody Stockbrokers had expected a decline of just 10%.

Formed from the merger of IAWS and Swiss bakery group Hiestand, Aryzta said food sales across the group fell 16% to under €730 million in the first three months of its financial year to end October 2009.

Margins improved considerably, however, pushing earnings up 2.2% to €51.1m, a figure that was in line with expectations.

Shares in the company were up over 1.2% or by 30 cents to €25.10 by mid-afternoon.

Aryzta said the 8% plus fall in food sales was a continuation of last year’s trend.

Food Europe sales declined by 11.4% due mainly to the “extremely tough” trading conditions in Ireland and Britain.

In mainland Europe, including Switzerland, Germany, France and Poland the business showed “excellent defensive characteristics”, the group said.

Sales in the group’s Food North America division were down by just over 2% as that market was also hit as consumers continued to keep a tight grip on their purse strings.

Liam Igoe of Goodbody said the overall profitincrease of 2.2% in Food in Q1 was similar to his forecast for FY10 as a whole in Aryzta Foods.

Davy Stockbrokers warned “sentiment towards the stock” could depend on how investors view the outlook.

The rate of deceleration in revenue growth – with the US now turned negative – is a concern, it said.

That is outweighed by margin progression and other factors including the ability to maintain absolute EBITA expansion in the group’s food division.

“We are forecasting EPS of 221.6c for this year, below guidance of 224.6c,” it said.

The direction of the food revenue line will probably continue to hold back any “re-rating in the short term,” Davy said.

In the case of Origin, its 70% subsidiary, about 80% of annual operating profits will be earned in the second half of the year in future.

In the first quarter earnings slumped 40% to €12.7m.

That reflects the increased seasonality of the business due to recent acquisitions and the impact on sales that were hit by the sharp global downturn which saw demand for compound feed stuffs decline.

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