Drop in biscuit sales sees Northern shares crumble

Shares in Northern Foods plunged more than 20 per cent yesterday after the food manufacturer warned that a slump in biscuit sales had hit trading over the Christmas period.

The company, which makes ready meals and prepared foods for supermarkets, said underlying sales of its biscuits, including the Fox's and Elkes brands, had fallen by 6 per cent in the three months to end-December.

In a trading update, the group said like-for-like sales growth to its top five customers, which include Marks & Spencer and J Sainsbury, had slowed to 3.5 per cent from 6 per cent during the first half. Underlying retail sales, which exclude the effect of last year's disposal of the Ski and Munch Bunch brands to Nestlé, slipped to 2.5 per cent from 3.5 per cent in the first half. Margins were "weaker", it added.

The news, which followed a poor Christmas for the group in 2001, prompted analysts to trim around 8 per cent off profit forecasts. Michael Landymore, at Investec Securities, cut his pre-tax profit forecast by £9m to £97m. Northern's shares fell 35p to 123p.

Jo Stewart, the chief executive, said the "general weaker sales growth trend echoed the noises from the food retailers of late". While analysts said that the Christmas period was generally slower for supermarket groups, not all agreed with Mr Stewart's assessment.

"It was disappointing given that Tesco and M&S both performed strongly. One would have expected Northern to have benefited from its large exposure to the continued good growth of both Tesco and M&S's food offers," Andrew Saunders, at Numis Securities, said. M&S reported a 3.9 per cent rise in food sales while Tesco said sales grew by 4.8 per cent.

Mr Stewart said biscuit sales, which represent 12 per cent of Northern's profits but a quarter of its underlying earnings, were likely to remain weak for at least the next three months. This is despite growth of around 4 per cent in the overall biscuit market and reflects aggressive promotions from Northern's rivals, Mr Stewart added. He said the group would need to raise the price of its chocolate biscuits by around 10 per cent to recover a virtual doubling of the cocoa price.

Asked what he made of the three-way bid battle for Safeway, Mr Stewart said: "I simply find it very interesting." He declined to say which outcome would be best for Northern, adding: "Whatever route it goes we will need to make sure we're not concerned."

The group said its full-year results would also reflect a "substantial" rise in insurance costs, which will double to £15m.