Shares of Associated British Foods (ABF) (LON:ABF) rose by 4.1% to £2,383 on Tuesday after the company reported results that exceeded expectations.
ABF posted a pre-tax profit of £1.917 billion, slightly surpassing analysts’ estimates of £1.873 billion. Primark, the company’s key retail unit, delivered operating profits that beat forecasts, while the Grocery segment performed in line with expectations.
“Primark ended FY24 stronger than initially guided, with its performance bolstered by favorable weather conditions in the UK in September, although this was somewhat anticipated given recent UK data,” analysts at Morgan Stanley noted.
However, ABF’s Ingredients, Sugar, and Agriculture divisions underperformed compared to analyst predictions.
The company also announced a £500 million share buyback program for fiscal year 2025. With leverage at a slightly better-than-expected 0.7 times, ABF declared a total dividend of 90 pence per share, which includes a special dividend of 27 pence—higher than previous forecasts.
Looking ahead, ABF is targeting mid-single-digit sales growth for Primark in fiscal year 2025, with 4-5% space growth. This suggests modest positive like-for-like sales growth, despite a small negative impact from foreign exchange fluctuations. The company expects its adjusted operating margin to remain roughly in line with the current year, as it works to stabilize gross margins while increasing investments to drive sales growth.
In the Grocery division, ABF plans to boost marketing investments to sustain momentum and anticipates a return to normal operations in its U.S. businesses.
In the Ingredients division, ABF expects continued growth in yeast and bakery ingredients, along with improved performance in specialty ingredients.
In contrast, the Sugar division has maintained its forecast for a decline in operating profit to between £50 million and £75 million for fiscal year 2025. However, a recovery is anticipated in fiscal year 2026, with profits expected to align more closely with the £181 million reported in the previous fiscal year, driven by lower contracted beet prices and market rebalancing.
“Primark, ABF’s largest business, continues to show strong space expansion in Europe and the U.S. and remains the dominant value player in the UK retail sector. We anticipate a return to positive like-for-like sales growth in FY25, with operating margin staying relatively stable year-on-year,” said analysts at RBC Capital Markets in a note.
