Cranswick shares plunge as high pig prices bite

Shares in Cranswick plunged 18% to their lowest since 2009 after the sausages-to-sandwiches group warned on profits, revealing it too was feeling a squeeze passing through the UK food chain

Cranswick said that it now expected its operating profits for April-to-September, the first half of its financial year, to "be lower than those of the corresponding period last year".

And the UK-based group, which in May said it was "well positioned to continue [its] successful long-"term development", said that its full-year results would fall short of original expectations too.

The revised guidance was blamed on "extremely demanding" market conditions, centred on the rising costs of pigs. The group paid more than 150p per kilogramme for pigs last month, up from 135p in March.

While Cranswick said it was in talks over passing on the costs to customers, its profits would be hit by the "extent" of the rise in its bills and the "time lag" in negotiating fresh contract prices.

Market pressures

Indeed, the profits warning comes amid pressures throughout the UK food retail chain, with pork producers, who claim to have made losses in 10 out of the last 12 years, squeezed by higher rearing costs.

Activists at the British Pig Industry Support Group, a pressure group, earlier this month stepped up a campaign against Tesco, the UK’s biggest retailer, which they claimed was exploiting its market power in, allegedly, refusing to pay more for pork.

However, supermarkets themselves are feeling the pinch as consumers tighten purse strings in the face of government austerity measures to bring the UK’s national debt back under control.

Grocers in June suffered their worst ever month for sales, with volumes slumping 4.2% year on year.

Market reaction

Cranswick’s warning was poorly received in the City, where Peel Hunt cut its recommendation on the group’s shares to "hold" from "buy", while Brewin Dolphin reduced its rating to "hold" from "add".

"We are reducing our profit-before-tax estimate for the current year by some £6.5m to £41.0m, and next year by £5.0m to £45.5m," Brewin Dolphin analyst John Dickinson said.

Investec put its "buy" recommendation on the group’s shares under review, while Shore Capital cuts its forecasts for Cranswick’s profits, while restating an assertion that the group is a "best-in-class operator", damaged by market-wide forces.

Cranswick shares plunged to 603.50p in early deals, their lowest since September 2009, before recovering some ground to stand at 655p at 09:45 UK time, down 11.4%.

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