Suedzucker’s sour read-across for Associated British Foods
Investors in foods-to-fashion conglomerate Associated British Foods (ABF) should note a new risk to earnings for its sugar business after industry peer Suedzucker issued a profit warning, implying ongoing difficulties in the sector.
Suedzucker’s full year results (27 Mar) revealed operating profit of €25m, significantly south of €75m guidance and a slump primarily caused by weakness in EU sugar.
The Mannheim-based sugar products play warned it expects another operating loss in its sugar business of between €200m-to-€300m in financial year ending 28 February 2020, although earnings should improve from October 2019, which marks the start of the new sugar marketing year.
Reassuringly for investors, Associated British Foods is a diverse business with interests in food brands and fashion retail to help cushion any challenges in the sugar arm.
The latter spoke for a reasonably modest 11% of group sales in the year to 15 September 2018. And in a trading update (25 Feb) ahead of first half results, Associated British Foods guided towards sales growth coming from all its businesses save for an expected reduction in sugar revenue.
It has already guided for the sugar arm to put up a marginal half year loss with lower EU contracted sugar prices having impacted its UK and Spanish businesses.