Primark drives strong sales at AB Foods, shares up 7%

Associated British Foods (LSE: ABF) reported strong financial results for its 2022 fiscal year ended September 16, 2022. The multinational food processing and retail company saw increases in revenue and profit across all business segments.

Total revenue for the year rose 16% to £19.75 billion, up from £17.00 billion the previous year. Pretax profit jumped 25% to £1.34 billion, compared to £1.08 billion in fiscal 2021. The company attributed these gains largely to pricing actions that offset cost inflation during the year.

ABF’s discount fashion retailer Primark saw a 17% increase in sales to £9.01 billion. However, adjusted operating profit at Primark dipped 2.8% to £735 million due to inflationary pressures. Still, this result exceeded the company’s expectations earlier in the volatile year when consumer spending was threatened.

In light of its strong performance, ABF announced a 37% increase in its total dividend payout to 60.0 pence per share. This includes a 33.1 pence final dividend and 12.7 pence special dividend.

ABF shares rose 7.0% on the day of the earnings announcement, reflecting the market’s favourable response to the company overcoming challenging economic conditions to deliver higher revenue and profit.

In further comments, Associated British Foods noted that Primark was able to withstand economic challenges in fiscal 2022 thanks to the strength of its product offerings and restraint in passing all input cost increases to customers. Although unseasonal weather dampened performance, especially in the second half of the year, Primark saw generally robust trading overall.

ABF chief executive George Weston remarked that the company performed extremely well amid major geopolitical events that created significant economic headwinds at the start of the financial year. He added that trading at Primark was excellent considering the circumstances.

Across ABF’s food businesses, grocery revenue grew 12% to £4.20 billion, while ingredients revenue jumped 18% to £2.16 billion from £1.83 billion the prior year. Sugar revenue also increased 26% to £2.55 billion. Agriculture revenue increased 6.9% to £1.84 billion. Weston credited the appeal of ABF’s products and the strength of its brands for enabling the company to recover high input cost inflation without disrupting customer relationships or profitability in its food segments.

Regarding the future outlook, ABF leadership expects the 2023 fiscal year to show meaningful progress driven by rising profitability, steady like-for-like sales growth at Primark, and increasing stability in the grocery sector as inflationary pressures ease. However, they cautioned that consumers still face economic challenges, albeit with less volatility observed so far versus the prior year.