AB Foods trims Grocery view, sees lower profit as Sugar losses mount

Associated British Foods PLC on Tuesday lowered guidance for its Grocery business as it delivered broadly in line annual results with a "challenging consumer environment" holding back Primark.

Shares in the London-based food and ingredients producer, which also owns fast-fashion clothing retailer Primark, were down 2.9% at 1,887.50 pence each in London on Tuesday, with the wider FTSE 100 down 0.4%.

AB Foods said pretax profit fell 10% to £1.28 billion in the 52 weeks ended September 12 from £1.41 billion the year prior.

Adjusted pretax profit slipped 14% to £1.46 billion from £1.70 billion, in line with Bloomberg consensus of £1.45 billion.

Basic earnings per share fell 6.9% to 131.9 pence from 141.6p, and by 11% to 156.0p from 174.9p on an adjusted basis.

Revenue edged up to £19.58 billion from £19.46 billion.

In Retail, sales reflected a "challenging consumer environment", with new stores contributing 5% to growth. UK like-for-like sales rose 0.5%, and Europe LFL sales fell 4.7%, the firm said.

AB Foods said the UK clothing retail environment remained difficult in the year, reflecting cautious consumer sentiment and challenging weather patterns.

In Europe, sales were broadly flat in Spain and Portugal but declined in Italy, Germany and France.

Adjusted operating profit in Retail fell 12%, and adjusted operating profit margin was 10.2%, reflecting "increased investment across price, marketing and digital initiatives to drive long-term growth."

Grocery adjusted operating profit declined 11%, mainly due to lower profit from US oils as expected.

Ingredients adjusted operating profit declined 8% due to soft market demand in bakery ingredients in the US, Sugar adjusted operating loss was £47 million, mainly due to lower average selling prices in Europe compared to 2025, and Agriculture adjusted operating profit of £19 million, was broadly in line with 2025.

Free cash flow amounted to £652 million compared to £648 million a year ago.

The total dividend of 63.0p per share was unchanged on-year and included a final payout of 42.3p per share.

Looking ahead, AB Foods expects to deliver adjusted operating profit and adjusted EPS below 2026, mainly due to Sugar.

"We remain cautious on consumer sentiment and also the impact of inflation and higher energy costs on our businesses. However, we expect to make continued strategic progress across the group, including strengthening Primark's customer proposition, integrating Hovis, restructuring our UK Sugar business and commissioning of our new yeast plant in India," it added.

At Primark, the firm said it is focused on like-for-like sales growth supported by increased investment in marketing and digital capabilities. In September, Primark announced plans for a home delivery service.

Primark's adjusted operating margin is expected to be around 10% in 2027, reflecting continued investment in like-for-like sales growth, excluding costs associated with the upcoming demerger. In 2027, the guidance reflects that there will be 53 weeks in the financial year.

In Grocery, AB Foods tamed its outlook. It expects adjusted operating profit to be broadly in line with 2026, with sales growth in most brands and businesses offset by higher input costs. In September, the firm said it expected adjusted operating profit to be slightly ahead of 2026.

In Sugar, the firm expects an adjusted operating loss in the range of £70 million to £170 million.

In Sugar, the firm commented there "are a number of factors that could materially influence the outcome, either positively or negatively, in particular: significantly higher gas costs; production levels in Africa resulting from El Nino weather impacts; and currency movements, especially the Malawian kwacha."

Work on the separation of Primark from the Foods business is "progressing well" and the demerger is expected to be completed in December 2027.

Ahead of the demerger, the firm will host separate capital markets days for Primark and AB Foods, which are expected to take place between April and July next year.

AB Foods refers to the standalone Food business post the demerger. The demerger plans were announced in April.

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