Associated British Foods’ third-quarter revenue came in at £5.3bn, broadly flat ignoring exchange rate impacts. Low single-digit growth across its Retail, Grocery and Ingredients businesses was offset by sharper declines in its smaller Sugar and Agriculture businesses.
Primark's revenue rose 3.0% to £2.9bn, driven entirely by new store openings. On a like-for-like basis, revenue was down 2.2% (-3.7% expected) due to a challenging retail environment across most of its markets, particularly in Europe.
Previously downgraded full-year guidance was reiterated, with ABF expecting underlying operating profit to land below last year’s level of £1.7bn (consensus: £1.5bn). Within that, the Sugar business is now expected to post an underlying operating loss of between £25-60mn due to continued oversupply in Europe and higher gas prices due to the Middle East conflict.
The shares fell 2.5% in early trading.
Our view
Associated British Foods (ABF) had a mixed third quarter. While there were some bright spots, the profit outlook in its sugar business is deteriorating, and full-year underlying operating profits look set to land some way below last year’s £1.7bn.
Despite a challenging retail environment, Primark’s recent sales performance in the UK and Ireland has been better than expected. Marketing investments and a focus on affordable fashion are driving market share gains. However, these investments alongside higher levels of discounting have been weighing on margins, and its mature store estate means growth opportunities on home soil are limited.
Overseas expansion is a big part of the game plan, with new stores expected to contribute around 4-5% in annual sales growth for the foreseeable future. But the outlook abroad has deteriorated recently, with European customers becoming more cautious with their spending.
In a bid to improve overseas performance, management’s pressing ahead with new initiatives abroad that have brought prior success in the UK. We’re cautiously optimistic that things will turn around here, but there’s room for things to get worse before they get better.
Primark's not the only show in town though - ABF is home to an eclectic mix of food and commodity businesses. Performance here has been underwhelming of late, with the profit outlook deteriorating, especially in the Sugar business.
Given the structural differences between its fashion and food businesses, we were pleased to hear that ABF is moving ahead with plans to spin out Primark. It should help sharpen management’s focus and unlock long-term shareholder value. However, it could be late 2027 before the move completes, so underlying business performance will be the key driver of sentiment in the near term.
ABF is managing the direct impacts of the Middle East crisis well, and hedging arrangements mean that higher energy and freight costs in 2026 should be manageable. But the indirect impact on consumer demand remains unknown and will likely depend on the conflict’s duration.
Despite a rise in net debt levels over the first half, the balance sheet remains in decent shape and should help the group weather the storm. This also means there's room to return excess cash to shareholders through ongoing share buybacks, though nothing is guaranteed.
Most of ABF’s businesses are currently suffering from weak end-markets, causing the valuation to fall well below its long-run average. While this may look attractive at face value, the outlook for sugar is deteriorating, and we don’t see many near-term catalysts for the rest of the business.
Environmental, social and governance (ESG) risk
The retail industry is low/medium in terms of ESG risk but varies by subsector. Online retailers are the most exposed, as are companies based in the Asia-Pacific region. The growing demand for transparency and accountability means human rights and environmental risks within supply chains have become a key risk driver. The quality and safety of products as well as their impact on society and the environment are also important considerations.
According to Sustainalytics, Associated British Foods’ management of ESG risk is strong.
ABF has a comprehensive environmental policy and global supplier code of conduct. Although priorities appear to be set at a group level, each business division has its own approach, resulting in certain businesses reporting more comprehensive sustainability efforts than others.
Associated British Foods key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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