Premier Foods to raise bread prices as wheat cost surges

Premier Foods, the maker of Quorn and Branston Pickle, is to raise the price of its Hovis-branded breads after taking a hit from higher wheat costs.

Shares in the company fell 5 per cent, or 13.75p, to 279.75p, after it forecast like-for-like sales to be "slightly behind last year", blaming a high level of price-cutting for its branded beans in the first half and the company's exit from a number of own-label contracts.

Premier said it had been particularly affected by the hot weather in April but added that the "return to a more normal British summer" had improved performance as rain-sodden shoppers stocked up on comfort foods such as cakes and soups.

The company also announced it is selling off the frozen foods business it acquired with the £1.2bn purchase of Mr Kipling and Bisto maker RHM in December. The unit generates annual sales of £50m and makes ready-meals, pies and desserts for supermarkets' own brand products. The company is understood to be in talks with a number of interested parties.

Premier said the integration of both RHM and soup maker Campbell, which it snapped up last July for £460m, was on track, and confirmed annual combined cost savings of £113m. Sales at Campbells, which were declining at 4 per cent a year when it bought the business, have returned to growth, it added.

Chief executive Robert Schofield said the first half will be seen as a "step-change" for Premier Foods after the completion of the Campbell's acquisition and the integration of RHM. "Underlying business performance has remained steady and while cost pressures, particularly wheat, are an issue, we expect to see branded growth across our business in the second half of the year," he said, adding the group was on track to meet full-year expectations.

Last week, Premier announced it was to close six factories and slash more than 600 jobs as part of a restructuring after the acquisitions. This provoked the anger of the Transport and General Workers' Union, which has accused the company of "behaving like private equity".

Premier said trading at RHM had been in line with expectations since acquisition, with bread sales affected by increased competition. Associated British Foods is investing in a relaunch of Kingsmill. Premier added that it will need to recover the further increases in wheat prices since February through pricing.

Analysts at Goldman Sachs said that despite "negative headwinds on cost, the company looks in good shape to deliver full-year expectations".