July 20, 2017 / 6:49 AM / a year ago

UPDATE 2-Premier Foods Q1 sales dip but signals revival

(Adds further details, analysts’ comment, share price reaction)

By Rahul B

July 20 (Reuters) - Premier Foods Plc, owner of Mr Kipling cakes, Bisto gravy and other British brands, reported a drop in first-quarter sales on Thursday but said it was confident that growth would return in the next quarter.

The company, which is under mounting pressure to improve the business after spurning a takeover offer last year from U.S. rival McCormick & Co, said sales for the 13 weeks to July 1 fell 3.1 percent as a good performance by its Sweet Treats division was offset by a slowdown in sales for its branded grocery products, notably desserts.

However, Premier said sales are likely to increase in the second quarter so that the first-half result will be broadly flat year-on-year.

Premier’s shares were up 0.64 percent at 39 pence at 0830 GMT after the company stuck to its full-year forecast.

It said sales by its Sweet Treats division in the first quarter rose, thanks to good demand for Cadbury and Mr Kipling cakes.

However, sales volumes in its Grocery division were 5.6 percent lower which the company said was due to a warmer June and a less effective promotional campaign for dessert products.

Sales fell most sharply in branded groceries, which includes the Batchelors brand, its third biggest, and Loyd Grossman pasta sauces.

“Poor performance in branded grocery was largely expected in light of a weak demand environment, a challenged ambient category, changing retailer promotional strategies and cost management initiatives,” Davy analysts Roland French and Katy Hutchinson said in a note. Davy has “neutral” rating on the shares.

Last month, Premier Foods said it was exploring options as part of a regular review into maximizing shareholder value after a media report said Premier had hired Credit Suisse to look at steps that could include the sale of one or more brands, a merger with another food group or an outright sale.

Premier rejected a 65 pence per share takeover bid from McCormick in April 2016, prompting criticism from major shareholders and leading to a steep drop in its share price.

Earlier this week McCormick agreed to buy Reckitt Benckiser Group’s food business for $4.2 billion. (Reporting by Rahul B in Bengaluru; Editing by Greg Mahlich)

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